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Business, 24.12.2021 06:20 stephaniedoffing

From the long-run neutrality of money, we know that the price level and the nominal exchange rate will ultimately rise in proportion to a permanent increase in the money supply. However, if the price level is not flexible in the short run and UIP holds, the depreciation of the domestic currency is greater in the than in the , a phenomenon called exchange rate overshooting.

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