ABSTRACT
The SP-DG model, Short-run expectations augmented Phillips-Demand Growth, is a macroeconomic framework used to analyse the dynamics of inflation and output gap in three different cases: disinflation strategies, permanent demand shocks and temporary supply shocks. For disinflation strategies, both an aggressive strategy and a more gradual one are illustrated. In the case of a permanent demand shock, the dynamics of the state variables, assuming different processes of expectation formation by economic agents, are studied. In the third case, three different policymaker responses – neutral, accommodating and extinguishing – are considered.
