Short run model of exchange rates determination

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Reference no: EM131000955

The following report appeared in the New York Times on August 7, 1989: “A soft landing would not force the Federal Reserve to push interest rates sharply lower to stimulate growth. Falling interest rate can put downward pressure on the dollar….In addition, the optimism sparked by the expectation of a soft landing can even offset some of the pressure on the dollar from lower interest rates”. Interpret this paragraph using the short run model of exchange rates determination (represent graphically and explain). Focus on how E is affected by changes in the interest rates and expectations as implied by this quote.

Reference no: EM131000955

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