In chapter 2 of Gali's book, he uses the equation (25):
and combine the "driving processes for technology and preference parameters", inflation can be written as :
I wonder how this new inflation equation is derived, and does the phrase "driving processes for technology and preference parameters" refer to the AR(1) process of technology and preference? like the following equation:
zt is the preference shifter in utility function.
at is the technology level in production funtion.
vt is the monetary shock in interest rate rule.
