In the News
Deflation and the Exchange Rate
19th April 2015
One of my students asked a pertinent question as part of revision a couple of days ago. Will deflation cause an appreciation of the local currency because real interest rates will be high and "hot money flows", or a depreciation because of animal spirits and the resulting capital flight? Or will there be a depreciation because the common response to deflation is to lower nominal interest rates, reducing real interest rates, while there are still low animal spirits?
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