appreciate in future (long run), means it will increase expected exchange rate now, in the short run Factors that affect exchange rates in short run: - exchange rate today, Et = determine demand slope, down slope - domestic interest rate, i = (iD) if ↑ then currency appreciates - when real interest rates rise, called "domestic interest rate" effect - when interest rates rise due to expected increase in inflation, currency depreciates, it's called "relative price level" effect -…
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