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exchange rate overshooting


'exchange rate overshooting' can also refer to...

 

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An instantaneous adjustment of the exchange rate to a change in the foreign exchange market such that the initial jump takes the exchange rate beyond its new equilibrium level, in order to clear the asset markets when, for example, the speed of adjustment of goods prices is finite. In such a case, once goods prices begin to adjust to the new environment the exchange rate proceeds to its new equilibrium level.

Subjects: Economics.


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