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An important assumption underlying the DD-AA model is that other things equal, a real depreciation of the home currency immediately improves the current account, while

  • An important assumption underlying the DD-AA model is that other things equal, a real depreciation of the home currency immediately improves the current account, while a real appreciation causes the current account immediately to worsen.
  • Explain graphically under what conditions it happens with a lag by explaining the J curve?

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