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Suppose the CB announces that it is concerned about signs of increasing inflation and states that is plans to have to start raising short-term rates
Suppose the CB announces that it is concerned about signs of increasing inflation and states that is plans to have to start raising short-term rates starting next year. Suppose further that the CB announces it plans to take action to increase the one-year bond rate to 0.75% next year and to 1.0% the following year and that the market believes the CB. Calculate what will happen to the current two-year and three-year spot rates right now. What is the CB trying to achieve?
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