InternationalParityRelationshipsandForecastingForeignExangeRates优秀讲义.pptVIP

Evidence on PPP PPP probably doesn’t hold precisely in the real world for a variety of reasons. Haircuts cost 10 times as much in the developed world as in the developing world. Film, on the other hand, is a highly standardized commodity that is actively traded across borders. Shipping costs, as well as tariffs and quotas, can lead to deviations from PPP. PPP-determined exchange rates still provide a valuable benchmark. Approximate Equilibrium Exchange Rate Relationships E(?$ – ?￡) ≈ IRP ≈ PPP ≈ FE ≈ FRPPP ≈ IFE ≈ FEP S F – S E(e) (i$ – i￥) The Exact Fisher Effects An increase (decrease) in the expected rate of inflation will cause a proportionate increase (decrease) in the interest rate in the country. For the U.S., the Fisher effect is written as: 1 + i$ = (1 + ?$ ) × E(1 + ?$) Where: ?$ is the equilibrium expected “real” U.S. interest rate. E(?$) is the expected rate of U.S. inflation. i$ is the equilibrium expected nominal U.S. interest rate. International Fisher Effect If the Fisher effect holds in the U.S., 1 + i$ = (1 + ?$ ) × E(1 + ?$) and the Fisher effect holds in Japan, 1 + i￥ = (1 + ?￥ ) × E(1 + ?￥) and if the real rates are the same in each country, ?$ = ?￥ then we get the International Fisher Effect: E(1 + ?￥) E(1 + ?$) 1 + i$ 1 + i￥ = International Fisher Effect If the International Fisher Effect holds, then forward rate PPP holds: E(1 + ?￥) E(1 + ?$) 1 + i$ 1 + i￥ = and if IRP also holds, 1 + i$ 1 + i￥ S￥/$ F￥/$ = E(1 + ?￥) E(1 + ?$) = S￥/$ F￥/$ PPP FRPPP FE FEP IFE Exact Equilibrium Exchange Rate Relationships IRP E(1 + ?￥) E(1 + ?$) 1 + i$ 1 + i￥ Forecasting Exchange Rates: Efficient Markets Approach Financial markets are efficient if prices reflect all available and relevant information. If this is true, exchange rates will only change when new information arrives, thus: St = E[St+1] and Ft = E[St+1| It] Predicting exchange rates using the efficient markets approach is affordable and is hard to beat. Forecastin