- Consider Two Countries A And B In 1996 Country A Experienced Robust Output Growth 5 0 Per Year Whereas Country B 1 (272.66 KiB) Viewed 30 times
- Consider Two Countries A And B In 1996 Country A Experienced Robust Output Growth 5 0 Per Year Whereas Country B 2 (60.51 KiB) Viewed 30 times
Consider two countries, A and B. In 1996, Country A experienced robust output growth (5.0% per year), whereas Country B had slow real output growth (1.0% per year). Suppose the central bank of Country A allowed the money supply to grow by 9.0% each year, whereas the central bank of Country B chose to maintain relatively low money growth of 3.0% per year. Use the general monetary model (where L depends on the interest rate of the country) and the purchasing power parity. Treat Country A as the home country and Country B as the foreign country. In addition, assume that the bank deposits in Country A pay 6% nominal interest per year. Now, suppose that the money supply growth rate in country A falls to 6% per year permanently today (at time T). Which of the following figures best describes the time series diagram of the nominal exchange rate, E(A/B)? Note that the vertical axis is log of E(A/B), and the horizontal axis is time. The time path is represented by the solid line(s). Figure 1 Figure 2 Figure 3 1 I Figure 4 Figure 6 Figure 5 :
Figure 7 Figure 8 Figure 9 1 1 1 1 1 T T