国经济经学课件12.ppt

An Introduction to International Economics Chapter 12: Exchange Rate Determination Dominick Salvatore John Wiley Sons, Inc. Forces the determine exchange rates Relative rates of economic growth If the U.S. grows more rapidly than the rest of the world, its demand for imports will increase more rapidly. By itself, this should increase the demand for foreign currency and lead to depreciation of the dollar. Forces the determine exchange rates Relative rates of economic growth Relative rates of inflation If U.S. inflation is greater than the rate of inflation in the rest of the world, the dollar will decrease in value. Forces the determine exchange rates Relative rates of economic growth Relative rates of inflation Changes in interest rates If U.S. interest rates fall relative to interest rates in the rest of the world, the demand for U.S. interest bearing assets will fall. By itself, this will lead to a fall in international demand for the dollar and a depreciation of the dollar. Forces the determine exchange rates Relative rates of economic growth Relative rates of inflation Changes in interest rates Expectations If it is expected that the dollar will fall in value, people will move out of dollar holdings. As dollar holdings fall, the dollar will depreciate. Trade approach The trade approach to exchange rate determination focuses on the role of international trade in determining exchange rates. Also known as the elasticities approach Works better as a long-run model of exchange rate determination. Trade approach The trade approach to exchange rate determination focuses on the role of international trade in determining exchange rates. In this approach, the equilibrium exchange rate is the rate that balances imports and exports. If the nation has a trade deficit, its currency will depreciate. If the nation has a trade surplus, its currency will appreciate. Purchasing power parity theory The law of one price The idea that in the absence of barriers to trade the price