KEY TERMS

monetary approach to exchange rates

law of one price (LOOP)

purchasing power parity (PPP)

absolute PPP

real exchange rate

real depreciation

real appreciation

undervalued

overvalued

inflation

relative PPP

money

central bank

money supply

money demand

quantity theory of money

fundamental equation of the monetary model of the price level

fundamental equation of the monetary approach to exchange rates

hyperinflation

real money demand function

Fisher effect

real interest rate

real interest parity

world real interest rate

nominal anchors

monetary regime

exchange rate target

money supply target

inflation target plus interest rate policy

central bank independence

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