Experiencing rapid economic growth

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In 1995, the Thai baht is pegged to a basket of currencies. Assume that the baht exchange rate is set at 25 baht per U.S. dollar. Thailand is experiencing rapid economic growth, with extensive ongoing foreign investment. CPI inflation in Thailand is somewhat higher than in the United States, and the current account in Thailand is in deficit. Nevertheless, Thailand has no problem in maintaining its fixed exchange rate with the dollar. Explain why the Thai baht does not depreciate as suggested by PPP?

Reference no: EM131329397

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