If say the markets expect the home country's currency to appreciate,

how will that affect equilibrium output and interest rate?

What I think: If they expect home country's currency to appreciate, there will be greater demand for the home country's currency in the forex market which would lead to appreciation of home country's currency. Can I then say that this will lead to increase in exchange rate? (I'm currently studying Mundell-Fleming model)


Your Answer

By clicking "Post Your Answer", you acknowledge that you have read our updated terms of service, privacy policy and cookie policy, and that your continued use of the website is subject to these policies.

Browse other questions tagged or ask your own question.