Traditional model vs. Money demand model model

bcp901

Both CFAI and Schweser do not do a good job of contrasting these models. Here are my notes based on Schweser. There are contradictions in the Traditional Model text vs. the illustrations Schweser uses in volume 5. These contradictions are purportedly explained by short vs. long-term distinctions but the causality is not clear.

Am I right to interpret the short-term impact on equities is positive, but long-term is negative per Schweser? The issue is the logic is weak. In the long-run if competitiveness (i.e. export) improve and so does economic activity then we would expect long-run equity exposure to be positive as well. Where's the intuition?

Equity Market
? Traditional Model - currency depreciation increases stock prices. Negative long-run domestic exposure to stock prices [this 2nd sentence is the contradiction and is noted on the illustration]
o Short-run: Negative – decline in exchange rates increases i) cost of imports thereby widening trade balance (Exports – imports), and ii) inflation
o Long-run: Positive - decline in exchange rate increases exports and economic activity
o The decline in trade balance and long-run improvement is called the J-curve effect
o Question of which effect dominates. For developed countries the long-run effect dominates avoiding a vicious cycle
? Money Demand Model – Increase in real activity increases demand for currency and equity prices. Positive domestic currency exposure