The volatility of exchange rates is reinforced by the phenomenon of overshooting, in which exchange rates depreciate or appreciate more in the long run than in the short run.

Question

Quizplus · Accepted Answer

Overshooting refers to a situation where exchange rates initially depreciate or appreciate more than what is necessary for long-term equilibrium, and then adjust back, meaning they show more volatility in the short run rather than in the long run.

The Volatility of Exchange Rates Is Reinforced by the Phenomenon