Which of the following is the reason for the failure of purchasing power parity theory and international Fisher effect in predicting short-term movements in exchange rates?

Question

Quizplus · Accepted Answer

The failure of purchasing power parity theory and international Fisher effect in predicting short-term movements in exchange rates is mainly due to the impact of investor psychology on short-run exchange rate movements. Short-term exchange rate movements are often driven by speculative behavior rather than economic fundamentals such as inflation rates or interest rates, making it difficult to predict.

Which of the Following Is the Reason for the Failure