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Analyze the impact of a second-generation crisis

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Use the IS-LM-FX Model to analyze the impact of a second-generation crisis. Assume that the country is hit by a negative investment shock. Show that it is more costly for the central bank to defend the exchange rate (measured as a drop in output) if investors believe that the exchange rate will be devaluated than if they do not expect a devaluation.

Reference no: EM133066193

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