Answer to Question #222157 in Macroeconomics for Danny boi

Question

Discuss the to which the traditional approach is an adequate model of exchange rate determination.

Answer 1

This concept is regards to convergence gap that is based on various qualitative and quantitative real elements. Considering transitive economies, the exchange rates tend to depart from parity daily. Convergence gap determines deviation. Based on that, transitive economy's exchange rate is similar to intersection of convergence gap, domestic price level, and foreign price level.