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Teaching Economics

In the News

Deflation and the Exchange Rate

Geoff Riley

19th April 2015

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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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Geoff Riley

Geoff Riley FRSA has been teaching Economics for nearly forty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD and Revision conferences in the UK and overseas.

@tutor2uGeoff

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