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Monetary Policy, Inflation, and the Business Cycle, Jordi Gali, Page 45 http://elib.peaceland.edu.ng:8383/greenstone3/sites/localsite/collect/peacelan/index/assoc/HASH0139.dir/doc.pdf

How does "ψ " convert to "MC"?

You can say Drago Bergholt solutions for Gali http://bergholt.weebly.com/uploads/1/1/8/4/11843961/the_basic_new_keynesian_model_-_drago_bergholt.pdf but Drago also didn't explain this change. (page 13 )

Sincerely

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  • $\begingroup$ I think you should solve the whole model to see this since the very beginning because for someone who is just looking on this equation can not say you how to proceed... $\endgroup$ Jan 21 '17 at 0:08
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The third line of p.45 denotes:

$MC_{t+k|t}=\psi_{t+k|t}/P_{t+k}$

but this is probably not the answer you are looking for.

Going from eq. (9) to (10), multipliy the right-hand side by $\frac{P_{t+k}}{P_{t+k}}=1$ (you can always multiply by one), the numerator goes into $\Pi_{t-1,t+k}$ (together with $P_{t-1}$), the denominator goes into $MC_{t+k|t}=\psi_{t+k|t}/P_{t+k}$.

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    $\begingroup$ @EnginYILMAZ You are welcome! If you're satisfied with the response, please consider upvoting and/or accepting the answer on the left, such that it shows up as "answered" on the website. $\endgroup$
    – Chris tie
    Jan 21 '17 at 18:55

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