Which of the following is correct?
A)Exchange rates in the short run are much more variable than inflation differentials.
B)Deviations from PPP are much more apparent for monthly data than annual.
C)PPP holds best in the long run.
D)All of the above.

Question

Quizplus · Accepted Answer

All statements are correct. A) Exchange rates can fluctuate significantly in the short term due to market sentiment, speculation, and other factors, making them more variable than inflation differentials. B) Purchasing Power Parity (PPP) deviations are more noticeable in shorter time frames like monthly data due to short-term fluctuations in exchange rates and prices. C) PPP tends to hold best in the long run as prices and exchange rates adjust to reflect changes in inflation and purchasing power between countries.

Which of the Following Is Correct