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Sir I have read OT notes as well as book but cannot find answer to below two questions, can you please tell me this that in context of monetary and exchange rate policy
1) Whether decrease in exchange rate increase inflation or does it decrease inflation?
2) Whether increase in interest rates increase exchange rate or does it decrease exchange rate?
In theory, the exchange rate is determined by the relative inflation rates in the two countries, and in theory interest rates and inflation rates increase and decrease in parallel. This is explained in Chapter 22 of the lectures notes and in the lectures that go with them.
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