利息率与率的关系.pptVIP

Relationship Between Inflation, Interest Rates and Exchange Rates Learning Outcomes Learning Outcomes Learning outcomes for Lecture 7: A. Discuss the purchasing power parity (PPP) theory and its implications for exchange rate changes B. Discuss the International Fisher effect (IFE) theory and its implications for exchange rate changes C. Compare the PPP theory, the IFE theory, and the theory of interest rate parity (IRP), which was introduced in the previous chapter PPP Purchasing Power Parity (PPP) 1. Interpretations of Purchasing Power Parity a. Absolute Form of PPP: It suggests that prices of the same basket of products in 2 different countries should be equal when measure in a common currency. Realistically, the existence of transportation costs, tariffs and quotas prevent absolute PPP b. Relative Form of PPP: State that the rate of change in the prices of the baskets should be somewhat similar when measured in a common currency, as long as transportation costs and trade barriers are unchanged Relative PPP 2. Rationale behind Purchasing Power Parity Theory: Exchange rate adjustment is necessary for the relative purchasing power to be the same whether buying products locally or from another country Appreciation/Depreciation of future exchange rate = Inflation differential Refer to e.g. in p.234 Relative PPP Derivation of PPP ef = [(1+Ih)/(1+If)] – 1 ef = % change in foreign currency Ih = Inflation of home country If = Inflation of foreign country The formula reflects the relationship between relative inflation rates and exchange rates according to PPP If Ih If, ef is positive, foreign currency will appreciate If Ih If, ef is negative, foreign currency will depreciate Derivation Commodities Derivation of PPP 4. Using PPP to Estimate Exchange Rate Effects: Refer to p.235-236 for e.g. a. Using a Simplified PPP Relationship, whereby, ef = Ih – If b. Exhibit 8.1 p.237 summarizes PPP Graphic Analysis of PPP 5. Graphic Analysis: