Скачать презентацию Purchasing power parity PPP The Law of One

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Purchasing power parity (PPP): The Law of One Price … in long run A good should cost the same in all countries (aside from tariffs or transportation costs) Exchange rates should make prices equal across countries … law of one price P = ER x P* Recall: RER = ER x P*/P. If we’re considering the same good, RER=1 and P=ER x. P*. (\$/bourbon) = (\$/£) x (£ /scotch) = (\$/scotch) If two countries have different inflation rates, exchange rates will move to keep prices the same The currency of the high inflation country depreciates (P/P*) ER (\$/£) … real exchange rate (bourbon/scotch) is steady

Parities you have known Uncovered interest rate parity: Ee = E (1+i)/(1+i*) Δ Ee/E = i – i* – A higher interest rate compensates for expected depreciation – If exchange rate truly fixed, i = i* Monetary Discipline Purchasing Power Parity: E = (RER) P/P* Δ Ee/E = π – π* – High inflation Currency depreciation – If exchange rate fixed, π – π* Price Discipline Wage Discipline