In the flexible-price model of Section 17 .3, suppose that the nominal interest rate in China is
Question:
(a) Which currency is expected to depreciate, and at what rate?
(b) Describe an event that can create a situation like that within this model.
(c) Can we conclude anything about differences in real interest rates across the two countries? Why or why not?
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a We can answer this question using the uncovered interest parity equation which states that the cur...View the full answer
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