On February 1st, the Federal Reserve announced it would raise interest rates by 25 bps. On February 2nd, the European Central Bank announced that it would raise interest rates by 50 basis points. Puzzlingly, the Euro then proceeded to depreciate relative to the dollar on February 2nd and 3rd despite this growing interest rate differential between Europe and the US. a. Compare what changed between the December 2022 and February 2023 European Central Bank Monetary Policy Decisions and statement in the first two paragraphs in such statement. Note that you can do this manually by reading the statements and comparing them. You may also use a word processor to automatically highlight any changes between the versions of the documents. b. Also, compare what changed between the December 2022 and February 2023 Federal Reserve FOMC statements. c. From your analysis what were the unexpected shocks or surprises to the interest rate differential contained in the February statements?

On February 1st, the Federal Reserve announced it would raise interest rates by 25 bps. On February 2nd, the European Central Bank announced that it would raise interest rates by 50 basis points. Puzzlingly, the Euro then proceeded to depreciate relative to the dollar on February 2nd and 3rd despite this growing interest rate differential between Europe and the US. a. Compare what changed between the December 2022 and February 2023 European Central Bank Monetary Policy Decisions and statement in the first two paragraphs in such statement. Note that you can do this manually by reading the statements and comparing them. You may also use a word processor to automatically highlight any changes between the versions of the documents. b. Also, compare what changed between the December 2022 and February 2023 Federal Reserve FOMC statements. c. From your analysis what were the unexpected shocks or surprises to the interest rate differential contained in the February statements?

Macroeconomics: Principles and Policy (MindTap Course List)

13th Edition

ISBN:9781305280601

Author:William J. Baumol, Alan S. Blinder

Publisher:William J. Baumol, Alan S. Blinder

Chapter19: The International Monetary System: Order Or Disorder

Section: Chapter Questions

Problem 8DQ

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