02laBE Iyne n Suppose that a central bank (CB) aims inflation targeting for price stability with...

 

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02laBE Iyne n Suppose that a central bank (CB) aims inflation targeting for price stability with An = ailon 0) under the flexible exchange rate regime. Further assume that there is trade and budget balance (NX = 0 and T = G), output is at its natural level (Y= Yn), domestic interest rate equals foreign interest rate (i = i), real interest and exchange rates equal their nominal values (r= i, & = E). If the foreign interest rate i increases how would change the exchange rate E, output Y, interest rate i, net export NX and budget B? Use IS-LM-UIP-PC model (15). 1+i IS: Y = C(Y-T) + I(Y,i) + G + NX (Y,Y*,E) E =- 1 + i LM:i=ī Ee 02laBE Iyne n Suppose that a central bank (CB) aims inflation targeting for price stability with An = ailon 0) under the flexible exchange rate regime. Further assume that there is trade and budget balance (NX = 0 and T = G), output is at its natural level (Y= Yn), domestic interest rate equals foreign interest rate (i = i), real interest and exchange rates equal their nominal values (r= i, & = E). If the foreign interest rate i increases how would change the exchange rate E, output Y, interest rate i, net export NX and budget B? Use IS-LM-UIP-PC model (15). 1+i IS: Y = C(Y-T) + I(Y,i) + G + NX (Y,Y*,E) E =- 1 + i LM:i=ī Ee

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To analyze the effects of an increase in the foreign interest rate i under the flexible exchange rate regime using the ISLMUIPPC model we need to cons... View the full answer