《国际经济学（双语）》（黄敏主编 复旦大学出版社）讲义 第7章.ppt

Theories of Exchange Rate Determination Chapter 7 Theories of Exchange Rate Determination 7.1 Theory of Purchasing Power Parity 7.2 Theory of Interest Rate Parity 7.3 Balance of Payments Approach 7.4 Asset Market Approach 7.1 Theory of Purchasing Power Parity Absolute Purchasing Power Parity the law of one price Identical goods should cost the same in all countries. Absolute purchasing power parity The equilibrium exchange rate between two currencies is equal to the ratio of the price levels in the two countries. 7.1 Theory of Purchasing Power Parity Defects: Not all products made by a country can be traded internationally. Tradable goods v.s. Nontradable goods The actually-existing transportation costs and trade barriers make the law of one price unrealistic. It ignores the influence of international capital flow on exchange rates. 7.1 Theory of Purchasing Power Parity Relative Purchasing Power Parity The changes of exchange rates are proportional to the relative changes of two countries’ prices in a certain period. It can provide a quick judgment on the change of exchange rates once a country’s inflation rate has been known. 7.1 Theory of Purchasing Power Parity Defects: It tends to overvalue the exchange rates of developed countries and to undervalue the exchange rates of developing countries. Because the prices of nontradable goods in developed countries are usually higher than that in developing countries. It is hard to choose the base period in which the existing exchange rates should be in equilibrium. Chapter 7 Theories of Exchange Rate Determination 7.1 Theory of Purchasing Power Parity 7.2 Theory of Interest Rate Parity 7.3 Balance of Payments Approach 7.4 Asset Market Approach 7.2 Theory of Interest Rate Parity Covered Interest Rate Parity 1+r = f/e?(1+r*) 7.2 Theory of Interest Rate Parity The premium or discount ratio of the forward exchange rate equals the difference between two coun