1) Yt - Yt* = -B (rt - rt*) + nt
- r*t = RBC real interest rate
- difference between r and r* tell difference between Yt and Yt* (plus some stochastic demand shock)
- this is the IS curve (?)
2) It = It-1 + a(Yt - Yt*) + et
- I = inflation (don't know how to do pi)
- et is a supply side price shock (like oil)
- this is the Phillips curve
3) rt = 2% + 0.5(It-1 - 2%) + 0.5(Yt-1 - Yt-1*) + et
- et in this case might be an interest rate shock