The authors compromise as to the key factors for exchange rate determination. They conclude that ________ are important in the short run, but that ________ determines long run exchange rates.
A) Fisher effect; PPP
B) asset markets, interest rates, and expectations; PPP
C) PPP; Fisher effect
D) Fisher effect; asset prices, interest rates, and expectations

Question

Quizplus · Accepted Answer

The authors conclude that in the short run, exchange rates are determined by asset markets, interest rates, and expectations. However, in the long run, exchange rates are determined by PPP. Therefore, option B is the most appropriate choice.

The Authors Compromise as to the Key Factors for Exchange