In this paper, the nonlocal boundary value problems for a class of nonlinear functional convection reaction-diffusion equations with the singular reaction function are studied by using the method of upper and lower solutions and monotone iterative technique.
In technical terms, no matter how big a weight expected inflation gets in the reaction function, if you multiply that weight by zero, you get zero.
From [the] minutes though there is also a chance that the MPC changes its reaction function and places more weight on pay, which could delay any tightening".
Explaining the Fed's reaction function, as this sort of guidance is called, has always been a key function of Fedspeak.
Most economists think the Federal Reserve has a reaction function with two influences: the deviation of inflation (or, now, expected inflation) from its target, and the deviation of unemployment from its target.
For one thing, it gives the impression that the central bank knows more about the world, or even about its own reaction function, than it really does.
And so it is entirely unsurprising that markets interpreted the Fed's communications on tapering as signaling a more hawkish reaction function.
We still can't be exactly sure what the Fed's reaction function is and what pace of recovery it is prepared to tolerate.
More importantly, the zero lower bound is only a binding constraint because inflation is assumed to be limited to low and stable rates.And so I think a real problem with the paper is the failure to lay out a rigorous account of the central bank's reaction function.
And there's also the technical point that some economic issues, like describing the process of disinflation, are more easily described if you put in a central bank reaction function than if you just assume fixed M. I guess my question is, why can't we walk and chew gum at the same time?
