Hi
the equation of real exchange rate is : real exchange rate (A/B)= equilibrium exchange rate(A/B) + real interest B-real interest B-risk premium B+risk premium A.
if relative purchase power parity holds, then real exchange rate (A/B)= equilibrium exchange rate(A/B).
This mean that real interest B-real interest B and risk premium B+risk premium offsets each other. Now, can someone explain me, considering that the RPPP: %S(A/B) =E[InflaA]-E[InflaB] is true, that real interest B-real interest B and risk premium B+risk premium offsets each other?
Thank you