2. Consider the Cagan model of nominal exchange rates. We will consider the impact on the exchange rate of an expectation of quantitative easing in the foreign economy. et = - (1) (177) [ms-oys + m +1 - Pi] 8-t For simplicity, let's assume that the monetary authority is pursuing a policy given by m, = 0ys + P for every s>t. Quantitative easing will be thought of as follows: Everybody in the economy expected the foreign interest rate to be in forever. Then at time t, it is unexpectedly announced that in period t + 3 and t +4, the foreign rate will temporarily fall to i