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Unformatted text preview: market participants expect the nominee to be conﬁrmed and also believe the nominee will conduct a more contractionary monetary policy in the future. Consider the present to be the last year of the current Fed chair’s term and the future to be the time after that. Given that monetary policy will be more contractionary in the future, what will happen to future interest rates and future output (at least for a while, until output returns to its medium run level)? Given that these future eﬀects are predicted, what will happen to output and the interest rate in the present? What will happen to the yield curve on the day the retirement announcement happens? 2...
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- Spring '11