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How can currency strengthen under periods of high inflation

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Reference no: EM133237093

Over the past year, the United States has experienced the highest degree of inflation since the 1970s. This inflation has been attributed to numerous causes including supply chain disruptions, pent up demand following the pandemic, and remarkably loose monetary policy. However, while this has occurred, the dollar has in fact only strengthened against a number of foreign currencies. Given our studies, outline the exchange rate dynamics we should hypothetically expect to see in theory given such domestic inflation and the present international macroeconomic conditions. Then reconcile that expectation with what is presently being observed. How can a currency strengthen under periods of high inflation? Why are our theories NOT invalidated by these observations?

Reference no: EM133237093

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