Reverse Shooting of Exchange Rates
Reverse shooting of the exchange rate has been put forward in this paper by scrutinizing the adjustment and evolution of the exchange rate towards its new long-run equilibrium level following a change in money supply. Joint and sequential effects of covered interest rate parity and the sticky price on the rise, from the short-term through the long-run horizon, result in a feature of reverse shooting of the exchange rate. Regardless of what the immediate response of the exchange rate to the change in money supply can be argued for, reverse shooting homogenizes the evolution path of exchange rate adjustment and movement from different views.
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