The document summarizes theories of long-run exchange rates, including purchasing power parity (PPP) and factors that determine real exchange rates. PPP holds that exchange rates equal price levels between countries in the long run. Empirical evidence does not strongly support PPP due to trade barriers, pricing differences, and measurement issues. A general model recognizes that real exchange rates are influenced by relative demand and supply shifts between countries. Nominal exchange rates are determined by real exchange rates and relative price levels, which are influenced by monetary factors like money supplies.
The document discusses trade policy strategies pursued by developing countries after World War II, including import-substituting industrialization and export-oriented industrialization. Import-substituting industrialization, which involved protecting domestic industries through import restrictions, was widely adopted but often resulted in inefficient industries and uneven economic development. In contrast, the highly successful East Asian economies achieved rapid growth starting in the 1960s by pursuing export-oriented industrialization, maintaining relatively open trade policies while selectively supporting certain industries.
This chapter discusses output and exchange rates in the short run for an open economy. It introduces models of aggregate demand and asset market equilibrium. The DD schedule shows combinations of output and exchange rates where the output market is in equilibrium. The AA schedule shows combinations where the money and foreign exchange markets are in equilibrium. Short-run macroeconomic equilibrium occurs at the intersection of the DD and AA schedules. The effects of temporary and permanent monetary and fiscal policy shifts are analyzed using the model. Policy tools can be used to maintain full employment in response to short-run disturbances.
1) This chapter discusses how money supply, interest rates, and exchange rates are interrelated in both the short run and long run.
2) In the short run, changes to a country's money supply will affect its interest rates, which then feed through to impact exchange rates via interest rate parity. An increase in money supply lowers interest rates and causes currency depreciation.
3) In the long run, a permanent increase in the money supply leads to a proportional increase in the price level but does not affect real output or interest rates. Higher long-term inflation correlates with higher monetary growth across countries.
The document summarizes the evolution of international monetary systems between 1870-1973. It describes the gold standard period, the interwar years, the Bretton Woods system, and issues that arose. The Bretton Woods system established fixed exchange rates but collapsed in the early 1970s due to US inflation and balance of payments problems. The document analyzes policy options countries faced in pursuing internal and external balance under fixed exchange rates.
This document summarizes key concepts about exchange rates and the foreign exchange market from an asset approach perspective. It discusses how exchange rates are determined by supply and demand in the foreign exchange market, and how interest rates, expectations of future exchange rates, and relative prices affect equilibrium in the market. Equilibrium requires interest rate parity, where expected returns are equal across currency deposits when measured in the same currency. A rise in a currency's interest rate causes its appreciation, while a rise in expected future exchange rates causes the current rate to rise as well.
The document discusses theories of long-run exchange rates and purchasing power parity (PPP). It introduces the law of one price and PPP, which predicts that exchange rates will equal the ratio of countries' price levels. Empirical tests find weak support for PPP and the law of one price. Real exchange rates, interest rates, and expected inflation differentials also influence long-run exchange rates. International differences in output, prices, and monetary policies can cause deviations from PPP in both the short and long run.
The document discusses exchange rates between sterling and the US dollar and euro over recent years. It shows that the UK has a floating exchange rate system where the value of the currency is determined by market forces. Charts demonstrate monthly fluctuations in sterling's value against these other currencies from 2014 to 2015. The text also analyzes how changes in exchange rates can impact a country's trade balance, exports and imports, inflation, and economic growth.
The document discusses trade policy strategies pursued by developing countries after World War II, including import-substituting industrialization and export-oriented industrialization. Import-substituting industrialization, which involved protecting domestic industries through import restrictions, was widely adopted but often resulted in inefficient industries and uneven economic development. In contrast, the highly successful East Asian economies achieved rapid growth starting in the 1960s by pursuing export-oriented industrialization, maintaining relatively open trade policies while selectively supporting certain industries.
This chapter discusses output and exchange rates in the short run for an open economy. It introduces models of aggregate demand and asset market equilibrium. The DD schedule shows combinations of output and exchange rates where the output market is in equilibrium. The AA schedule shows combinations where the money and foreign exchange markets are in equilibrium. Short-run macroeconomic equilibrium occurs at the intersection of the DD and AA schedules. The effects of temporary and permanent monetary and fiscal policy shifts are analyzed using the model. Policy tools can be used to maintain full employment in response to short-run disturbances.
1) This chapter discusses how money supply, interest rates, and exchange rates are interrelated in both the short run and long run.
2) In the short run, changes to a country's money supply will affect its interest rates, which then feed through to impact exchange rates via interest rate parity. An increase in money supply lowers interest rates and causes currency depreciation.
3) In the long run, a permanent increase in the money supply leads to a proportional increase in the price level but does not affect real output or interest rates. Higher long-term inflation correlates with higher monetary growth across countries.
The document summarizes the evolution of international monetary systems between 1870-1973. It describes the gold standard period, the interwar years, the Bretton Woods system, and issues that arose. The Bretton Woods system established fixed exchange rates but collapsed in the early 1970s due to US inflation and balance of payments problems. The document analyzes policy options countries faced in pursuing internal and external balance under fixed exchange rates.
This document summarizes key concepts about exchange rates and the foreign exchange market from an asset approach perspective. It discusses how exchange rates are determined by supply and demand in the foreign exchange market, and how interest rates, expectations of future exchange rates, and relative prices affect equilibrium in the market. Equilibrium requires interest rate parity, where expected returns are equal across currency deposits when measured in the same currency. A rise in a currency's interest rate causes its appreciation, while a rise in expected future exchange rates causes the current rate to rise as well.
The document discusses theories of long-run exchange rates and purchasing power parity (PPP). It introduces the law of one price and PPP, which predicts that exchange rates will equal the ratio of countries' price levels. Empirical tests find weak support for PPP and the law of one price. Real exchange rates, interest rates, and expected inflation differentials also influence long-run exchange rates. International differences in output, prices, and monetary policies can cause deviations from PPP in both the short and long run.
The document discusses exchange rates between sterling and the US dollar and euro over recent years. It shows that the UK has a floating exchange rate system where the value of the currency is determined by market forces. Charts demonstrate monthly fluctuations in sterling's value against these other currencies from 2014 to 2015. The text also analyzes how changes in exchange rates can impact a country's trade balance, exports and imports, inflation, and economic growth.
1. The document discusses applications of the standard trade model, including how economic growth and changes in terms of trade can affect a nation's welfare.
2. It explains how general equilibrium models can be used to determine an equilibrium pattern of trade between two nations.
3. The standard trade model is modified to illustrate international borrowing and lending over time, with goods being exchanged between periods rather than simultaneously. Nations can trade current goods for future goods through borrowing and lending.
This chapter introduces national income accounting and balance of payments accounting concepts. It defines key terms like gross national product (GNP), gross domestic product (GDP), current account balance, and financial account. The national income identity equation shows that in an open economy, GNP equals consumption + investment + government purchases + net exports. Balance of payments accounts record international transactions and must balance according to the fundamental identity of current account + financial account + capital account = 0.
This document provides an overview of the standard trade model. It discusses key concepts like production possibility frontiers, relative supply and demand curves, and terms of trade. Countries produce two goods and their production depends on relative prices. World trade equilibrium occurs at the intersection of global relative supply and demand. Economic growth can shift supply curves, impacting terms of trade. International transfers can also shift demand curves and influence prices. Tariffs simultaneously impact both relative supply and demand.
The document discusses the pros and cons of floating exchange rates that have been in place globally since 1973. It analyzes arguments for and against floating rates, examines macroeconomic interdependence between countries with floating rates, reviews what has been learned about floating rates since 1973, questions if fixed rates are an option, and suggests directions for reforming the international monetary system.
This document discusses various trade policy instruments including tariffs, quotas, and subsidies. It provides details on how tariffs work, including their effects on supply, demand, prices and welfare in both importing and exporting countries. Tariffs can increase domestic producer surplus but decrease consumer surplus, and their overall welfare effect depends on whether the "terms of trade effect" is larger or smaller than the efficiency loss. The document also discusses other policies like export subsidies and import quotas.
This chapter discusses fixed exchange rates and foreign exchange intervention by central banks. It covers why fixed exchange rates are studied, how central banks intervene in currency markets to maintain fixed rates, the effects on monetary policy and economic stabilization, and risks of balance of payments crises. It also examines reserve currencies, gold standards, and the implications of different international monetary systems.
This document discusses the theory of purchasing power parity (PPP). PPP states that exchange rates should adjust so that a currency can buy the same amount of goods and services in all countries. It is based on the law of one price, which says that goods must sell for the same price globally after accounting for exchange rates. The nominal exchange rate between two currencies should reflect differences in their price levels. Limitations of PPP include the fact that not all goods trade globally and tradable goods from different countries are not always perfect substitutes.
This document discusses several international parity conditions:
- The law of one price states that identical goods should have the same price when expressed in a common currency.
- Purchasing power parity suggests that exchange rates will adjust to compensate for differences in prices of the same goods between countries.
- Covered interest parity implies that interest rate differentials should be offset by changes in forward exchange rates to prevent arbitrage opportunities.
- Reasons for deviations from these conditions include trade barriers, non-traded goods, measurement issues, and political/tax differences.
This document discusses indirect taxes and subsidies. It provides details on different types of indirect taxes, including VAT, fuel duties, and tobacco duties levied in the UK. It explains how indirect taxes increase producer costs and are passed onto consumers in the form of higher prices. The document also examines how the burden of an indirect tax is distributed between consumers and suppliers, depending on the price elasticity of demand. Finally, it discusses government subsidies to producers and consumers and some examples used in different markets.
The document discusses various trade policy instruments and their economic effects. It analyzes how tariffs, export subsidies, import quotas, and voluntary export restraints impact prices and trade volumes in importing and exporting countries. Tariffs reduce trade volume but generate government revenue, while quotas and export restraints reduce welfare by conferring quota rents on foreign producers. Local content rules pass higher costs onto domestic consumers.
This document summarizes key concepts related to money, interest rates, and exchange rates. It discusses what money is, how the money supply is controlled by central banks, and factors that influence the demand for money, including interest rates, prices, and income. A model of aggregate money demand is presented showing the relationship between real money demand, interest rates, and income. The interaction of money supply and demand in the money market is explained, along with how changes in the money supply or national income affect interest rates. Finally, the connection between the domestic money market and foreign exchange market is described.
1. Aggregate demand is the total demand for final goods and services in an economy over a given period of time. It is made up of consumption, investment, government spending, exports minus imports.
2. Changes in aggregate demand are key to understanding economic fluctuations like recessions and recoveries. A rise in aggregate demand leads to economic expansion while a fall causes contraction.
3. Shifts in aggregate demand are caused by changes in factors like fiscal policy, monetary policy, business and consumer confidence, and external economic conditions.
The foreign exchange market averaged $5.3 trillion in daily trading volume in April 2013, up from $4 trillion in 2010. Spot trading and FX swaps were the most active instruments. The US dollar remained the dominant currency, involved in 87% of trades, though the euro and Japanese yen's involvement has increased. Exchange rates are quoted either as a currency's price per unit of another currency or vice versa. Banks and dealers profit from small differences between the rates they buy and sell currencies at.
The document summarizes three models of aggregate supply and the relationship between inflation and unemployment known as the Phillips curve. The models are the sticky-wage, imperfect-information, and sticky-price models. It also discusses how expectations are formed, the short-run tradeoff in the Phillips curve, and the costs of reducing inflation through contractionary policy.
This document summarizes key aspects of the specific factors model of international trade. It discusses how the model assumes specific factors of production for different industries and a mobile factor. It also explains how the model shows that trade can impact income distribution by affecting demand for specific factors. The document outlines how the model demonstrates that trade shifts relative prices and outputs, which benefits owners of specific factors for exporting industries but harms those for importing industries, while the effects on mobile factors are ambiguous. It concludes that while trade creates winners and losers, the gains from trade could compensate the losses.
This document provides an overview of different trade policy instruments, including tariffs, quotas, subsidies, and voluntary export restraints. It discusses how each instrument affects prices and trade flows. Tariffs raise domestic prices in the importing country and lower prices abroad. Quotas also raise domestic prices by creating quota rents for license holders. Export subsidies lower foreign prices but worsen the terms of trade, providing no benefits. Voluntary export restraints are costly for importers as the rents go to foreign firms. The document analyzes the costs and benefits of protection for consumers, producers and governments.
Government policies such as price controls, taxes, and minimum wages can impact supply and demand in markets. Price controls like ceilings and floors are set above or below equilibrium prices and result in shortages or surpluses. Taxes decrease market activity by shifting supply and demand curves. The incidence of a tax depends on supply and demand elasticities, with inelastic sides bearing more of the burden. These policies are aimed at achieving economic and social goals but can impact market efficiency.
Supply-side policies aim to improve the productive potential of an economy through various market-led and state intervention approaches. Market-led policies focus on making markets more competitive through deregulation and tax cuts, while state intervention aims to overcome market failures. The objectives of supply-side policies include improving skills, productivity, investment, and competitiveness. Successful supply-side policies could achieve sustained low inflation growth and reduce unemployment. However, the effects of supply-side policies can take a long time to materialize and not all policies effectively pick winners. Evaluating their impact also requires considering demand-side conditions and issues like inequality and sustainability.
The document discusses exchange rate determination theories from international economics. It covers the purchasing power parity theory, including absolute and relative PPP. It then covers the monetary approach to exchange rates and the balance of payments under both fixed and flexible exchange rate systems. The monetary approach views exchange rates as primarily determined by monetary factors in the long run.
This document discusses theories of long-run exchange rates, including purchasing power parity (PPP) and the law of one price. It provides empirical evidence that PPP does not perfectly hold in reality due to trade barriers, departures from perfect competition, and differences in measuring price levels across countries. The document also examines a monetary model of exchange rates and how changes in money supplies, interest rates, and output can impact nominal and real exchange rates in the long run.
1. The document discusses applications of the standard trade model, including how economic growth and changes in terms of trade can affect a nation's welfare.
2. It explains how general equilibrium models can be used to determine an equilibrium pattern of trade between two nations.
3. The standard trade model is modified to illustrate international borrowing and lending over time, with goods being exchanged between periods rather than simultaneously. Nations can trade current goods for future goods through borrowing and lending.
This chapter introduces national income accounting and balance of payments accounting concepts. It defines key terms like gross national product (GNP), gross domestic product (GDP), current account balance, and financial account. The national income identity equation shows that in an open economy, GNP equals consumption + investment + government purchases + net exports. Balance of payments accounts record international transactions and must balance according to the fundamental identity of current account + financial account + capital account = 0.
This document provides an overview of the standard trade model. It discusses key concepts like production possibility frontiers, relative supply and demand curves, and terms of trade. Countries produce two goods and their production depends on relative prices. World trade equilibrium occurs at the intersection of global relative supply and demand. Economic growth can shift supply curves, impacting terms of trade. International transfers can also shift demand curves and influence prices. Tariffs simultaneously impact both relative supply and demand.
The document discusses the pros and cons of floating exchange rates that have been in place globally since 1973. It analyzes arguments for and against floating rates, examines macroeconomic interdependence between countries with floating rates, reviews what has been learned about floating rates since 1973, questions if fixed rates are an option, and suggests directions for reforming the international monetary system.
This document discusses various trade policy instruments including tariffs, quotas, and subsidies. It provides details on how tariffs work, including their effects on supply, demand, prices and welfare in both importing and exporting countries. Tariffs can increase domestic producer surplus but decrease consumer surplus, and their overall welfare effect depends on whether the "terms of trade effect" is larger or smaller than the efficiency loss. The document also discusses other policies like export subsidies and import quotas.
This chapter discusses fixed exchange rates and foreign exchange intervention by central banks. It covers why fixed exchange rates are studied, how central banks intervene in currency markets to maintain fixed rates, the effects on monetary policy and economic stabilization, and risks of balance of payments crises. It also examines reserve currencies, gold standards, and the implications of different international monetary systems.
This document discusses the theory of purchasing power parity (PPP). PPP states that exchange rates should adjust so that a currency can buy the same amount of goods and services in all countries. It is based on the law of one price, which says that goods must sell for the same price globally after accounting for exchange rates. The nominal exchange rate between two currencies should reflect differences in their price levels. Limitations of PPP include the fact that not all goods trade globally and tradable goods from different countries are not always perfect substitutes.
This document discusses several international parity conditions:
- The law of one price states that identical goods should have the same price when expressed in a common currency.
- Purchasing power parity suggests that exchange rates will adjust to compensate for differences in prices of the same goods between countries.
- Covered interest parity implies that interest rate differentials should be offset by changes in forward exchange rates to prevent arbitrage opportunities.
- Reasons for deviations from these conditions include trade barriers, non-traded goods, measurement issues, and political/tax differences.
This document discusses indirect taxes and subsidies. It provides details on different types of indirect taxes, including VAT, fuel duties, and tobacco duties levied in the UK. It explains how indirect taxes increase producer costs and are passed onto consumers in the form of higher prices. The document also examines how the burden of an indirect tax is distributed between consumers and suppliers, depending on the price elasticity of demand. Finally, it discusses government subsidies to producers and consumers and some examples used in different markets.
The document discusses various trade policy instruments and their economic effects. It analyzes how tariffs, export subsidies, import quotas, and voluntary export restraints impact prices and trade volumes in importing and exporting countries. Tariffs reduce trade volume but generate government revenue, while quotas and export restraints reduce welfare by conferring quota rents on foreign producers. Local content rules pass higher costs onto domestic consumers.
This document summarizes key concepts related to money, interest rates, and exchange rates. It discusses what money is, how the money supply is controlled by central banks, and factors that influence the demand for money, including interest rates, prices, and income. A model of aggregate money demand is presented showing the relationship between real money demand, interest rates, and income. The interaction of money supply and demand in the money market is explained, along with how changes in the money supply or national income affect interest rates. Finally, the connection between the domestic money market and foreign exchange market is described.
1. Aggregate demand is the total demand for final goods and services in an economy over a given period of time. It is made up of consumption, investment, government spending, exports minus imports.
2. Changes in aggregate demand are key to understanding economic fluctuations like recessions and recoveries. A rise in aggregate demand leads to economic expansion while a fall causes contraction.
3. Shifts in aggregate demand are caused by changes in factors like fiscal policy, monetary policy, business and consumer confidence, and external economic conditions.
The foreign exchange market averaged $5.3 trillion in daily trading volume in April 2013, up from $4 trillion in 2010. Spot trading and FX swaps were the most active instruments. The US dollar remained the dominant currency, involved in 87% of trades, though the euro and Japanese yen's involvement has increased. Exchange rates are quoted either as a currency's price per unit of another currency or vice versa. Banks and dealers profit from small differences between the rates they buy and sell currencies at.
The document summarizes three models of aggregate supply and the relationship between inflation and unemployment known as the Phillips curve. The models are the sticky-wage, imperfect-information, and sticky-price models. It also discusses how expectations are formed, the short-run tradeoff in the Phillips curve, and the costs of reducing inflation through contractionary policy.
This document summarizes key aspects of the specific factors model of international trade. It discusses how the model assumes specific factors of production for different industries and a mobile factor. It also explains how the model shows that trade can impact income distribution by affecting demand for specific factors. The document outlines how the model demonstrates that trade shifts relative prices and outputs, which benefits owners of specific factors for exporting industries but harms those for importing industries, while the effects on mobile factors are ambiguous. It concludes that while trade creates winners and losers, the gains from trade could compensate the losses.
This document provides an overview of different trade policy instruments, including tariffs, quotas, subsidies, and voluntary export restraints. It discusses how each instrument affects prices and trade flows. Tariffs raise domestic prices in the importing country and lower prices abroad. Quotas also raise domestic prices by creating quota rents for license holders. Export subsidies lower foreign prices but worsen the terms of trade, providing no benefits. Voluntary export restraints are costly for importers as the rents go to foreign firms. The document analyzes the costs and benefits of protection for consumers, producers and governments.
Government policies such as price controls, taxes, and minimum wages can impact supply and demand in markets. Price controls like ceilings and floors are set above or below equilibrium prices and result in shortages or surpluses. Taxes decrease market activity by shifting supply and demand curves. The incidence of a tax depends on supply and demand elasticities, with inelastic sides bearing more of the burden. These policies are aimed at achieving economic and social goals but can impact market efficiency.
Supply-side policies aim to improve the productive potential of an economy through various market-led and state intervention approaches. Market-led policies focus on making markets more competitive through deregulation and tax cuts, while state intervention aims to overcome market failures. The objectives of supply-side policies include improving skills, productivity, investment, and competitiveness. Successful supply-side policies could achieve sustained low inflation growth and reduce unemployment. However, the effects of supply-side policies can take a long time to materialize and not all policies effectively pick winners. Evaluating their impact also requires considering demand-side conditions and issues like inequality and sustainability.
The document discusses exchange rate determination theories from international economics. It covers the purchasing power parity theory, including absolute and relative PPP. It then covers the monetary approach to exchange rates and the balance of payments under both fixed and flexible exchange rate systems. The monetary approach views exchange rates as primarily determined by monetary factors in the long run.
This document discusses theories of long-run exchange rates, including purchasing power parity (PPP) and the law of one price. It provides empirical evidence that PPP does not perfectly hold in reality due to trade barriers, departures from perfect competition, and differences in measuring price levels across countries. The document also examines a monetary model of exchange rates and how changes in money supplies, interest rates, and output can impact nominal and real exchange rates in the long run.
Chapter 4 Price Levels and the Exchange Rate in the Long run.pdfDuongThelia
Chapter 4 Price Levels and the Exchange Rate in the Long run - ENG
Lecturer: Trần Việt Dung - UEB
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The document discusses the theory of purchasing power parity (PPP). It defines PPP as the principle that identical baskets of goods should have the same price when expressed in a common currency if not for trade barriers. Absolute PPP suggests prices levels should be equal across countries, while relative PPP suggests inflation differentials should equal exchange rate depreciation. The document provides examples of how PPP can be used to estimate exchange rate levels and changes. It also discusses factors like transaction costs and non-traded goods that can cause deviations from PPP in practice.
This document provides an overview of Chapter 13 from the textbook "International Economics: Theory and Policy" which discusses exchange rates and the foreign exchange market from an asset approach. The chapter introduces exchange rates and how they are determined in international transactions. It then explains the foreign exchange market, how different actors participate in it, and the characteristics of spot, forward, futures and options trading. Finally, it discusses the demand for foreign currency assets and how equilibrium is reached in the foreign exchange market through interest rate parity.
This document provides an overview of Chapter 13 from the textbook "International Economics: Theory and Policy" which discusses exchange rates and the foreign exchange market from an asset approach. The chapter introduces exchange rates and how they are determined in international transactions. It then explains the foreign exchange market, how different actors participate in it, and the characteristics of spot, forward, futures and options trading. Finally, it discusses the demand for foreign currency assets and how equilibrium is reached in the foreign exchange market through interest rate parity.
Relationships between Inflation, Interest Rates, and Exchange Rates ICAB
The document discusses purchasing power parity (PPP) theory and the international Fisher effect (IFE) theory. PPP theory states that inflation rate differentials between countries will lead to changes in exchange rates as the high inflation country's currency depreciates. IFE theory similarly argues that interest rate differentials, which often correlate with expected inflation differentials, will cause the high interest rate currency to depreciate. Both theories predict that the currency experiencing higher inflation or interest rates will lose value against other currencies. The document also provides derivations of the PPP and IFE formulas to calculate expected exchange rate changes based on inflation or interest rate differentials.
The document discusses several parity conditions in international finance that provide an intuitive explanation of the movement of prices and interest rates in different markets in relation to exchange rates. It introduces key concepts like purchasing power parity (PPP), which states that inflation rates should equal changes in exchange rates, and the law of one price, which says identical goods should have the same price when expressed in a common currency. The document contrasts the absolute and relative forms of PPP and provides examples of how PPP can be used to forecast future exchange rates and calculate real exchange rates.
The document discusses the concept of purchasing power parity (PPP). It defines PPP as the exchange rate between two currencies that would equalize the purchasing power of the currencies in their respective countries. The document notes that under PPP, a given amount of one currency should have the same purchasing power whether used directly to purchase goods in that country or converted to the other currency at the PPP rate. It then asks several questions about how inflation, interest rates, and other factors may impact exchange rates. The rest of the document provides explanations of absolute and relative PPP, how PPP is used to make cross-country comparisons, and some limitations of the PPP theory.
- Exchange rates are determined by the interaction of supply and demand in foreign exchange markets. In the short run, exchange rates are the price of one country's bank deposits in terms of another's. In the long run, exchange rates are influenced by factors like relative price levels, trade barriers, productivity, and demand for imports and exports.
- Exchange rates can be affected by interest rates, but the impact depends on whether a change in domestic interest rates is due to a change in the real interest rate or expected inflation. A rise in the real interest rate appreciates the domestic currency, while a rise in expected inflation depreciates it. Properly distinguishing between real and nominal rates is important for predicting exchange rate movements.
This paper develops an equilibrium model of the determination of exchange rates and prices of goods. Changes in relative prices due to supply or demand shifts induce changes in exchange rates and deviations from purchasing power parity. These changes may create a correlation between the exchange rate and the terms of trade, but this correlation cannot be exploited by governments to affect the terms of trade through foreign exchange market operations. The model emphasizes the role of relative price changes due to real disturbances and how these changes affect both exchange rates and the terms of trade through shifts in supply and demand. Government interventions in foreign exchange markets cannot influence exchange rates if the relationship between exchange rates and terms of trade is due to shifts in real supply and demand for domestic and foreign goods.
International parity-conditions-9-feb-2010Nitesh Mandal
This document discusses several international parity conditions that can be used to predict foreign exchange rates:
1. Purchasing power parity (PPP) states that exchange rates should equalize price levels between countries based on a basket of goods.
2. The international Fisher effect (IFE) states that exchange rates adjust to equalize interest rate differentials between countries.
3. Interest rate parity (IRP) focuses on spot and forward exchange rates between countries' money and bond markets and establishes a break-even condition for returns.
4. Forward rates are expected to be an unbiased predictor of future spot rates according to the expectations theory of exchange rates.
These parity conditions are interrelated
3 Parity Relations_Dr Kaaya.pdf Relationship in international Marketrenmichael09
The document discusses several international parity theories that attempt to explain fluctuations in exchange rates. It describes theories related to inflation rates, interest rates, economic growth, trade balances, and more. Specifically, it outlines theories of supply and demand, purchasing power parity (PPP), the Fisher effect, interest rate parity, and rational expectations. PPP suggests that exchange rates should adjust over time to reflect differences in inflation between countries. The Fisher effect also links exchange rates and interest rates to inflation rates.
This document appears to be a student project on interest rate parity submitted for a university course. It includes a title page with the student's name and details, a declaration signed by the student, an acknowledgements section thanking the professor for guidance, and a table of contents listing the various sections of the project. The sections discuss concepts like covered and uncovered interest rate parity, the assumptions of interest rate parity, and covered interest rate parity specifically. Diagrams and equations are provided to illustrate the concepts.
This document discusses various factors that determine exchange rates in the short run and long run. In the short run, exchange rates are affected by transfers of bank deposits in response to interest rate differentials. In the medium run, cyclical economic fluctuations impact exchange rates. In the long run, exchange rates are determined by flows of goods and services based on inflation, productivity, tastes, and trade policy between countries. The document also discusses theories like purchasing power parity and the asset market approach to explain long run exchange rate determination.
This document discusses currency exchange rates and economic growth. It provides details on how exchange rates are determined between currencies, including factors that affect exchange rate spreads. It also outlines several economic theories related to what drives long-term economic growth, such as investment in physical and human capital, as well as productivity gains from technological development. Key growth accounting relationships are presented, linking output growth to contributions from capital deepening, increases in the labor force, and improvements in total factor productivity.
International movements-meaning-Export & import of merchandise & services-International investment-International Payments, Rate of exchange, Economic integration
This document discusses testing the strong and weak forms of purchasing power parity (PPP) between Jordan and its major trading partners (Japan, UK, Turkey, and US) from 2000-2012. It first examines the strong form of PPP by testing if the real exchange rate is stationary, finding it is nonstationary, implying long-run PPP does not hold. It then uses Johansen cointegration tests to examine the weak form of PPP, finding a cointegrating relationship between exchange rates and domestic/foreign price levels, providing evidence that weak PPP holds between Jordan and its trading partners. The document reviews literature on PPP testing and discusses the methodology used, including specifications for testing the strong and weak forms.
The document discusses the foreign exchange market and factors that influence exchange rates. It outlines how the market works, defines key terms like appreciation and depreciation, and examines exchange rate determinants in both the long run and short run. In the long run, factors like relative price levels and productivity affect rates, while short-run supply and demand analysis shows how interest rates and expected future rates impact equilibrium. Charts and tables illustrate these concepts.
The ppt gives a description of how different theories define working of forex market. ?
when & where do these theories fail?
What is the impact of macro-economic factors like inflation, unemployment etc on forex exchange.?
A nicely formatted presentation.
What are the different types of forex market?
Artists create art for several reasons: recognition, religion, impulse, and self-expression. Some artists seek fame and fortune through their art, hoping to earn a livelihood. Others create art to glorify their faith or as an offering to deities. Some feel a strong internal drive to create, spending much of their time doing so out of passion. For many artists, their creations are a reflection of themselves and a way to express ideas and emotions that can't be conveyed through words alone.
This document provides instructions on identifying parts, pre-testing, diagnosing, and troubleshooting electric fans. It discusses the common parts of an electric fan and issues users may encounter, such as the fan not rotating or making noise. The document offers steps to determine the problem, inspect parts, and fix issues like a defective capacitor, thermal fuse, or worn bearings. It stresses safety precautions like unplugging fans before cleaning and not bending blades. The overall goal is to teach how to properly maintain and repair electric fans.
The document discusses the 7Ps of marketing - product, place, price, promotion, people, packaging, and marketing mix. It provides details on each P, including key considerations for developing products, distribution channels for place, factors that influence pricing, various promotional methods like advertising and public relations, the importance of people in marketing, the different functions of packaging, and using the marketing mix for a class project presenting a commercial.
The document discusses the future of technology and vocational education, including how education can adapt to advances like Education 4.0. It examines where technology and vocational education is heading, how education can cope with changes, and achieving the United Nations' Sustainable Development Goal of quality education for all by 2030.
Amado V. Hernandez was a Filipino writer and National Artist awarded posthumously in 1973 for literature. As a writer, he moved away from ornate Tagalog and wrote in a style closer to everyday spoken language. His first major work, the novel "Mga Ibong Mandaragit," exposed the problems of land and farming in 1950s society and was written while he was imprisoned. Hernandez was also a renowned playwright and essayist who believed art should serve as a conscience for society.
The document introduces basic concepts in economics. It defines economics as the study of how societies use scarce resources to produce and distribute goods and services. It discusses that economics has two main branches: macroeconomics which looks at overall economic performance, and microeconomics which examines individual decision-making and prices. Some key economic concepts introduced are scarcity, opportunity cost, and the three factors of production - land, labor, and capital. It also outlines the basic economic problems societies face in determining what and how much to produce, how to produce, and for whom to produce. Finally, it briefly describes three main economic systems - traditional, command, and market economies.
This document discusses the relationship between drama and theater. It notes that drama is uniquely tied to performance and bringing the text to life for an audience. The theater shapes the interaction between the dramatic work and its community. Historically, drama originated from religious rituals and evolved differently in various cultures and eras based on the role and institution of theater in society. Over time, drama emerged as a commercial art form but was not always considered serious literature due to its performance origins. The document also explores dramatic genres such as tragedy and comedy and their defining characteristics.
I. This document provides an overview of dance including its nature, history, benefits, elements, and how to appreciate performances. It discusses dance as an art form that focuses on aesthetic and entertaining experiences.
II. The brief history of dance section outlines how it was used for religious expression in Ancient Egypt, military education in Ancient Greece, and expressing tribal unity and courtship in the Philippines.
III. Elements of dance like space, time, energy, shapes, and group formations are defined. Characteristics of a good dance incorporate unity, continuity, variety, transition, repetition, and climax.
The document provides information on important figures and developments in Philippine art and culture from the early 20th century onwards. It lists plays, architects, urban planners, artists, writers, and cultural works that were influential in establishing and advancing the Filipino artistic tradition, including the first modern Filipino play in English in 1915. Many of the individuals mentioned such as Fernando Amorsolo, Victorio Edades, and Carlos Francisco later received the distinction of National Artist of the Philippines.
The document discusses the characteristics of contemporary art. It states that contemporary art emerged after World War II and includes over 100 different styles and movements. Artists experiment with various mediums and forms to make statements, and collaborative works are becoming more popular. Contemporary art is found not just in museums but also in public spaces, galleries, schools and online. It is often interactive and emphasizes the artistic process over originality.
Analysis insight about a Flyball dog competition team's performanceroli9797
Insight of my analysis about a Flyball dog competition team's last year performance. Find more: https://github.com/rolandnagy-ds/flyball_race_analysis/tree/main
The Ipsos - AI - Monitor 2024 Report.pdfSocial Samosa
According to Ipsos AI Monitor's 2024 report, 65% Indians said that products and services using AI have profoundly changed their daily life in the past 3-5 years.
State of Artificial intelligence Report 2023kuntobimo2016
Artificial intelligence (AI) is a multidisciplinary field of science and engineering whose goal is to create intelligent machines.
We believe that AI will be a force multiplier on technological progress in our increasingly digital, data-driven world. This is because everything around us today, ranging from culture to consumer products, is a product of intelligence.
The State of AI Report is now in its sixth year. Consider this report as a compilation of the most interesting things we’ve seen with a goal of triggering an informed conversation about the state of AI and its implication for the future.
We consider the following key dimensions in our report:
Research: Technology breakthroughs and their capabilities.
Industry: Areas of commercial application for AI and its business impact.
Politics: Regulation of AI, its economic implications and the evolving geopolitics of AI.
Safety: Identifying and mitigating catastrophic risks that highly-capable future AI systems could pose to us.
Predictions: What we believe will happen in the next 12 months and a 2022 performance review to keep us honest.
Predictably Improve Your B2B Tech Company's Performance by Leveraging DataKiwi Creative
Harness the power of AI-backed reports, benchmarking and data analysis to predict trends and detect anomalies in your marketing efforts.
Peter Caputa, CEO at Databox, reveals how you can discover the strategies and tools to increase your growth rate (and margins!).
From metrics to track to data habits to pick up, enhance your reporting for powerful insights to improve your B2B tech company's marketing.
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This is the webinar recording from the June 2024 HubSpot User Group (HUG) for B2B Technology USA.
Watch the video recording at https://youtu.be/5vjwGfPN9lw
Sign up for future HUG events at https://events.hubspot.com/b2b-technology-usa/
06-04-2024 - NYC Tech Week - Discussion on Vector Databases, Unstructured Data and AI
Discussion on Vector Databases, Unstructured Data and AI
https://www.meetup.com/unstructured-data-meetup-new-york/
This meetup is for people working in unstructured data. Speakers will come present about related topics such as vector databases, LLMs, and managing data at scale. The intended audience of this group includes roles like machine learning engineers, data scientists, data engineers, software engineers, and PMs.This meetup was formerly Milvus Meetup, and is sponsored by Zilliz maintainers of Milvus.
1. Price Levels and the Exchange Rate in the Long Run
Chapter 15
Prepared by Iordanis Petsas
To Accompany
International Economics: Theory and Policy, Sixth Edition
by Paul R. Krugman and Maurice Obstfeld