Consider the asset model of exchange rate determination studied in class. The money demand is given by the equation

Extra-Credit 2 Asset Approach to Exchange Rate sset model of exchange rate determination studied in class. Th equation interest parity is given by the equation B+1 - E investors form their expectations following the equation 641 = 06, + (1 -0)59 arameter, 0 s es 1. t = 1, the following information is provided: 0 = 0, P, = 1, MJ To = 1. Find E, . t (a), suppose the Central Bank applies a contractionary mo der static exchange rate expectations: M = 50 and 0 is still 0 t (a), suppose the Central Bank applies a contractionary mo nder changing exchange rate expectations: M. = 50 and 8 is no alue that E will take in the new long-run equilibrium