J. Bradford DeLong
The current level of the exchange rate--relative to the long-run purchasing-power-parity level at which representative baskets of commodities have the same price at home and abroad--depends on curent and expected future interest rate differentials between home and abroad.
When home interest rates are above or are expected to be above foreign interest rates, the exchange rate will be appreciated above its purchasing-power-parity level. When home interest rates are below or are expected to be below foreign interest rates, the exchange rate will be depreciated below its purchasing-power-parity level.
|Short-Run Value of the Exchange Rate Interest and Exchange Rates|
of Economics J. Bradford DeLong, 601 Evans Hall, #3880
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