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inflation and exchange rate Bnb XRP aave Bonk coinbase futures litecoin futures cardano futures

How do exchange rates affect inflation?

The degree to which domestic prices adjust to exchange rate movements is key to understanding inflation dynam-ics, and hence to guiding monetary policy. However, the exchange rate pass-through to inflation varies considerably across countries and over time.

How does inflation affect a country's currency?

Higher interest rates tend to attract foreign investment, which is likely to increase the demand for a country's currency. It is a fine balance and so is the resulting impact on a country's exchange rate. In general, when inflation is high, this weakens a currency because buying power is reduced.

What is the relationship between inflation and currency movements?

In addition, the relationship between inflation and currency movements depends on the nature of the underlying shock. Monetary policy shocks are associated with a higher exchange rate pass-through compared to other domestic shocks, and global shocks have widely different effects. Finally, country characteristics matter for pass-through rates.

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