巴罗 宏观经济学 现代观点 18章ppt课件.pptVIP

Macroeconomics Chapter 18 Different Currencies and Exchange Rates Each country issues and uses its own currency, instead of using a common currency. To keep things simple, pretend that there are only two countries. Think of the home country as the United States and the foreign country as China. The China nominal quantity of money, Mf, is measured in RMB. The U.S. nominal quantity of money, M, is in Dollars. Different Currencies and Exchange Rates Exchange market, on which participants trade the currency of one country for that of another. the nominal exchange rate is the number of RMBs received for each dollar. Let ε denote the nominal exchange rate between RMBs and dollars. Example: Chinese Yuan Different Currencies and Exchange Rates Different Currencies and Exchange Rates Purchasing-Power Parity Sometimes countries allow their nominal exchange rates to move freely in response to market forces. These systems are called flexible exchange rates. In other circumstances, countries try to maintain a constant nominal exchange rate with respect to another currency, often the U.S. dollar. These systems are called fixed exchange rates. Purchasing-Power Parity Purchasing-Power Parity Purchasing-Power Parity Purchasing-Power Parity The PPP Condition and the Real Exchange Rate The U.S. price level, P, is measured in dollars per unit of goods. We denote the Chinese price level (or foreign price level) by Pf , measured in RMB per unit of goods. Assume that the goods produced and used in both countries are physically identical. We also ignore any transportation or other transaction costs for buying and selling goods in the two countries. Purchasing-Power Parity The PPP Condition and the Real Exchange Rate 1/P = ε·(1/Pf) quantity of goods that can be bought in U.S. = quantity of goods that can be bought in China Purchasing-Power Parity purchasing-power parity ε = Pf/P nominal exchange rate = ratio of foreign price to home price P