The empirical data indicate that in the short run exchange rates are much more variable than inflation differentials.

Question

Quizplus · Accepted Answer

This statement is true as short-term fluctuations in exchange rates are often driven by factors such as changes in market sentiment, geopolitical events, and shifts in capital flows, which can cause rapid and significant movements in currency values. In contrast, inflation differentials tend to change at a more gradual pace and are influenced by factors such as domestic economic conditions, government policy, and global commodity prices.

The Empirical Data Indicate That in the Short Run Exchange