There are two countries in the world, A and B. Suppose the central bank in country A has an annual inflation target pai = 0.02 while the central bank in country B has an annual inflation target pai = 0.03. In the long run, we would expect the nominal exchange rate of country A to appreciate against country B at a rate of about 1% per year. True or False? Explain.
There are two countries in the world, A and B. Suppose the central bank in country A has an annual inflation target pai = 0.02 while the central bank in country B has an annual inflation target pai = 0.03. In the long run, we would expect the nominal exchange rate of country A to appreciate against country B at a rate of about 1% per year. True or False? Explain.
Chapter13: Inflation
Section: Chapter Questions
Problem 10SQ
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There are two countries in the world, A and B. Suppose the central bank in country A has an annual inflation target pai = 0.02 while the central bank in country B has an
annual inflation target pai = 0.03. In the long run, we would expect the nominal
exchange rate of country A to appreciate against country B at a rate of about 1% per year.
True or False? Explain.
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