logS3elogS0=(i0i0)+(i1ei1)+(i2ei2) where S3e=E0[S3],ite=E0[it] and ite=E0[it] for t=1,2, (2) Suppose that the foreign interest rate is determined by the foreign central bank as the following: it+1=it+errori+1 where error t+1=it+1Et[it+1] is the prediction error at time t+1, and Et[ error t+1]=0 for all t=0,1,2, The domestic central bank controls the domestic interest rate in one of the following policy rules: Rule A The domestic interest rate is equal to the lagged foreign interest rate. it+1=it Rule B The domestic interest rate depends on the lagged foreign interest rate. it+1=it+errort+1 Rule C The domestic interest rate is independent of the the foreig nterest rate. it+1=it+errort+1 where error t+1 is the monetary policy shock at time t+1, and Et[ error t+1]=0 for all t=0,1,2, Now suppose that the current foreign interest rate, i0 decreases by 1%p whereas the current domestic interest rate, i0 is fixed. For each policy rule, compute the impact of the fall in i0 on (logS3elogS0). (3) What is the implication of the findings from the Question 9-(2). logS3elogS0=(i0i0)+(i1ei1)+(i2ei2) where S3e=E0[S3],ite=E0[it] and ite=E0[it] for t=1,2, (2) Suppose that the foreign interest rate is determined by the foreign central bank as the following: it+1=it+errori+1 where error t+1=it+1Et[it+1] is the prediction error at time t+1, and Et[ error t+1]=0 for all t=0,1,2, The domestic central bank controls the domestic interest rate in one of the following policy rules: Rule A The domestic interest rate is equal to the lagged foreign interest rate. it+1=it Rule B The domestic interest rate depends on the lagged foreign interest rate. it+1=it+errort+1 Rule C The domestic interest rate is independent of the the foreig nterest rate. it+1=it+errort+1 where error t+1 is the monetary policy shock at time t+1, and Et[ error t+1]=0 for all t=0,1,2, Now suppose that the current foreign interest rate, i0 decreases by 1%p whereas the current domestic interest rate, i0 is fixed. For each policy rule, compute the impact of the fall in i0 on (logS3elogS0). (3) What is the implication of the findings from the Question 9-(2)