Depreciation In its initial depreciation after a money supply rise, the exchange ratejumps from E 1 up$/€ to E 2, a depreciation greater than its long-rundepreciation from E 1 to E 3. The exchange rat
Depreciation In its initial depreciation after a money supply rise, the exchange ratejumps from E 1 up$/€ to E 2, a depreciation greater than its long-rundepreciation from E 1 to E 3. The exchange rat
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In its initial depreciation after a money supply rise, the exchange rate
jumps from E 1 up$/€ to E 2, a depreciation greater than its long-run
depreciation from E 1 to E 3. The exchange rate is said to overshoot when its
immediate response to a disturbance is greater than its long-run response.
Exchange rate overshooting is an important phenomenon because it helps explain
why exchange rates move so sharply from day to day. The economic explanation of
overshooting