RateintheLongRun(国际金融香港大学,WONGKaF.pptxVIP

Price levels and Exchange Rate in the Long RunWONG Ka Fu7th February 2001Basic math reviewX=A/B? ln X = ln A - ln BY=Y(x) ? d ln Y / dx = d lnY / dY ? dY / dx= (1/Y) (dY/dx)Basic math reviewP=P(t) ? d ln P / dt = d lnP / dP ? dP / dt=(1/P) (dP/dt)Take the change of t (dt) from s to s+1.? d ln P / dt = [1/P(s)] [P(s+1) - P(s) /1]= [P(s+1) - P(s) ] / P(s)= percentage change in P at time s. Law of one priceIn a competitive markets free of 1. transportation costs and 2. official barriers to trade (such as tariffs),identical goods sold in different countries must sell for the same price when th