According to the _______,high exchange rate volatility is explained by the failure of PPP to hold in the short run.
A) Overshooting approach
B) News approach
C) Portfolio-balance approach
D) Trade balance approach

Question

Quizplus · Accepted Answer

The overshooting approach explains high exchange rate volatility by stating that in the short run, the exchange rate adjusts more than what would be required to bring the trade balance to equilibrium, due to deviations from PPP.

According to the _______,High Exchange Rate Volatility Is Explained by the Failure