ch15 克鲁格曼 教材.pptVIP

;Introduction;The Law of One Price;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 ;Purchasing Power Parity;The Relationship Between PPP and the Law of One Price The law of one price applies to individual commodities, while PPP applies to the general price level. If the law of one price holds true for every commodity, PPP must hold automatically for the same reference baskets across countries. Proponents of the PPP theory argue that its validity does not require the law of one price to hold exactly.;Absolute PPP and Relative PPP Absolute PPP It states that exchange rates equal relative price levels. Relative PPP It states that the percentage change in the exchange rate between two currencies over any period equals the difference between the percentage changes in national price levels, namely: E$/€ /E$/€, t –1 = ?US / ?E, where: ?t = inflation index So that Er = E t –1 * ?US / ?E If less 1 in both 2 sides ;(E$/€ ,t - E$/€, t –1)/E$/€, t –1 = (?US, t - ?E, t )/ ?E, t If ?E, t is smaller ，Relative PPP between the United States and Europe would be: (E$/€ ,t - E$/€, t –1)/E$/€, t –1 = ?US, t - ?E, t (15-2)..\..\case.ppt;Monetary approach to the exchange rate A theory of how exchange rates and monetary factors interact in the long run. The Fundamental Equation of the Monetary Approach Price levels can be expressed in terms of domestic money demand and supplies: In the United States: PUS = MsUS/ L (R$, YUS) (15-3) In Europe: PE = MsE/L (R€, YE) (15-4) So that: E = PUS / PE = MsUS* L (R€, YE) / MsE *L (R$, YUS) ;The monetary approach makes a number of specific predictions about the long-run effects on the exchange rate of changes in: Money supplies An increase in the U.S. (European) mon