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Monetary Economics中美元和英镑汇率分析 [3]

论文作者:英语论文论文属性:学期论文 termpaper登出时间:2014-12-05编辑:yangcheng点击率:21145

论文字数:7222论文编号:org201412042315019709语种:英语 English地区:马来西亚价格:免费论文

关键词:汇率分析Exchange Rate美元和英镑transaction costs

摘要:本文是旨在对美元和英镑的汇率分析的留学生论文,本文试图参考关于购买力平价的丰富的文献资料,分别调查世界上最发达的两个经济体——美国和英国长期购买力平价的总体情况。

e, discuss the debate of PPP and the test of unit root and random walk as well as explaining of some improved techniques for the testing of PPP in last decade. Section 3 describes the data and empirical framework. Section 4 will show the findings from the analysis while section 5 will conclude the paper.

2. Literature review

2.1 Purchasing Power Parity and Law of One Price

Purchasing Power Parity states that in the absence of transaction costs and barriers to trade, a commodity should price the same regardless of its location. If the prices of similar goods are different between countries, the exchange rate will adjust to be equal to the ratio of the price levels of the countries, so as to offset any possible arbitrage opportunities. If this scenario were to exist, three economic reactions will be subsequently observed (Arnold 2008);

Being relatively expensive, the demand of the particular commodity will fall, forcing price down. (Domestic)

Being relatively cheaper, the demand of the particular commodity will increase, increasing the price. (Foreign)

The demand for the foreign currency relative to domestic currency would increase

Eventually, the exchange rate and the price levels of the two countries will adjust until they converge at equilibrium again and PPP will hold again.

Before exploring further into PPP, it will be appropriate to mention the law of one price theory as it forms the groundwork for Purchasing Power Parity (PPP) theory, which explains relationship between nominal exchange rates and price levels in the long run.

Similar to PPP, the law of one price states that in the absence of transaction cost and barriers to trade, identical goods in 2 countries should sell for the same price. The law of one price applies to individual commodities while purchasing power parity is relevant to a basket of goods normally measured as CPI or WPI. Consequently, if the law of one price holds true for all the commodities in the country, Purchasing Power Parity theory should also hold. The equation below shows that the price of a similar good sold in different counties when expressed in a similar currency.

Where is price of good i in dollars, is the nominal exchange rate and is price of good i in British Pounds. Therefore, the exchange rate between the two countries equates the relative ratios of the countries’ price levels. (Shown below)

From the equation above, it can be seen that when there is any changes to the purchasing power of the countries, it will eventually lead to a proportional appreciation or depreciation of the nominal exchange rate of the countries. (Krugman and Obstfeld, 2006)

2.2 Relative & Absolute PPP

The absolute PPP states that exchange rate is equal to the national price levels in two countries and the purchasing power would be the same in the two countries if expressed in a common currency. Alternatively, Relative PPP looks at the percentage changes in the price levels and the exchange rate and stipulate that any changes in exchange rate should be matched by a proportional change in the price levels so as to keep the ratio constant.

where is the % change in the nominal exchange rate and denotes the inflation rate (% change in price levels).

Froot and Rogoff (1994) pointed out that disc论文英语论文网提供整理,提供论文代写英语论文代写代写论文代写英语论文代写留学生论文代写英文论文留学生论文代写相关核心关键词搜索。
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