The relationship between Exchange Rate and inflation

Abstract

The effect of the exchange rate on inflation is one of the most important contemporary issues in the economy, which must be solved and eliminated. The reason for interest in this issue is that it is one of the fundamentals and concerns of the economy, not the exchange rate and inflation affect the economy and consumer prices as well. The change in the foreign exchange rate affects prices and therefore changes in inflation. The exchange rate also affects the prices of imported goods. These commodities are allocated to the consumption market as they affect the raw materials used in the manufacture of goods and indirectly affect the balance of imports. ( Worstall . 1970 ) , (n.n . 2012) , ( Riley. 2009 ) , (Amadeo, 2018) . The change in the exchange rate affects the real exchange rate through its effect on economic activity, leading to the emergence of inflation and starts to increase as the change in the exchange rate leads to a change in interest rates and an increase in inflation. Are unable to take loans for investment and set up projects and manufacturing for domestic consumption or for export. Also, people who implement projects will not have the ability to complete the project because they can not finance the project due to inflation and high interest rates. (n.n . 2005) , (Uribe.1997 ) . In the event that inflation has decreased and decreased, interest rates will become low and thus will be able to invest, set up projects and export. Naturally, in the event of lower inflation, the exchange rate will be reduced. Any change or fluctuation in the exchange rate directly leads to a change in the value of the national currency of local products and services. Any change or fluctuation in inflation will also lead to this. In the event of a decline in value, the market will be less than competitive and will therefore affect the volume of exports. Its decline and decline will adversely affect economic activity and affect inflation. (n.n . 2005) , (n.n . 2012) . Inflation also affects the purchasing power of individuals and their income. Inflation is related to a recession. There are different exchange rate regimes trying to address the problem. The flotation of the Egyptian pound is supposed to have reduced the crisis and solved it, but the opposite has happened. The exchange rate has a direct and indirect effect on inflation. (n.n . 2012) , ( Riley. 2009 ) . (Uribe.1997) , ( Worstall . 1970 ) , (n.n . 2005) , ( Riley. 2009 ) , (n.n . 2012) , (Shapiro . 2012) , (Amadeo, 2018) .