Re: jnu 2014 discussion

Posted by shelly gupta on May 02, 2015; 12:43am
URL: http://discussion-forum.276.s1.nabble.com/jnu-2014-discussion-tp7596392p7596506.html

According to Interest Rate Parity theory, India's exchange rate should depreciate by 5% since inflation is 5% higher there. So India's currency has appreciated by 10% and it should depreciate by 5%, this implies real change is only 5% appreciation.

and the correct formula is (change in rer)/rer = (change in ner)/ner + foreign inflation - home inflation