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EXCHANGE RATES, Intermediate, SHORT-RUN: Asset, REGIMES, Dollarization =…

- - - - P(U.S.) * e = P(India)
      - Intuition is that if a good is systematically cheaper in one country, it will be imported into another country, and the prices will become equal / e will adjust
        
        But! Transportation costs, taxes and imperfect information make it impossible that prices are the same. We can't export Indian haircut to the U.S. This is where Relative PPP comes handy
  - - - P(U.S.) e = D P(India)
        
        growth in e = π (U.S.) - π (India)
  - - - In the long-run, you can buy something in another country and at home the price should be the same
- - - - Pound becomes more attractive than dollar because the return is higher
        
        UK currency appreciates against that of U.S.
        
        (i - i(foreign)) ↑ = e ↑