第4章.PriceLevelsandtheExchangeRateintheLongRun.王晓静.ppt

Key terms Short run 短期 Long run 长期 Interest parity condition 利率平价条件 Purchasing power parity (PPP) 购买力平价 The law of one price 一价定律 Absolute version of PPP PPP的绝对形式 Relative version of PPP PPP的相对形式 Relative PPP 相对购买力平价 Introduction The model of long-run exchange rate behavior provides the framework that actors in asset markets use to forecast future exchange rates. Predictions about long-run movements in exchange rates are important even in the short run. In the long run, national price levels play a key role in determining both interest rates and the relative prices at which countries’ products are traded. The theory of purchasing power parity (PPP) explains movements in the exchange rate between two countries’ currencies by changes in the countries’ price levels. §1 The Law of One Price Law of one price 1.1 Identical goods sold in different countries must sell for the same price when their prices are expressed in terms of the same currency. This law applies only in competitive markets free of transport costs and official barriers to trade. Example: If the dollar/pound exchange rate is $1.50 per pound, a sweater that sells for $45 in New York must sell for ￡30 in London. 1.2 It implies that the dollar price of good i is the same wherever it is sold: PiUS = (E$/€) x (PiE) where: PiUS is the dollar price of good i when sold in the U.S. PiE is the corresponding euro price in Europe E$/€ is the dollar/euro exchange rate §2 Purchasing Power Parity Theory of Purchasing Power Parity (PPP) 2.1 The exchange rate between two counties’ currencies equals the ratio of the counties’ price levels. It compares average prices across countries. 2.2 It predicts a dollar/euro exchange rate of: E$/€ = PUS/PE (4-1) where: PUS is the dollar price of a reference commodity basket sold in the United States PE is the euro price of the same basket in Europe 2.3 By re