12exchange rate determination财经国际经济贸易学院

吉林财经大学国际经济贸易学院

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sAffectingExchangeRates

Relativeratesofeconomicgrowth

Ifanationgrowsmorerapidlythantherestoftheworld,itsdemandforimportswillincreasemorerapidly.

Thiswillincreasethedemandforforeigncurrencyandleadtoadepreciationofthedomesticcurrency.

Relativeratesofinflation

Ifanation’sinflationisgreaterthantherateofinflationintherestoftheworld,thedomesticcurrencywilldecreaseinvalue.

Changesininterestrates

Ifinterestrateinanationincreasesrelativelytointerestrateintherestoftheworld,thesupplyofforeigncurrencywillincrease.

Thiswillleadtoanappreciationofthedomesticcurrency.

Expectations

Ifdomesticcurrencyisexpectedtofallinvalue,peoplewillmoveoutofitsholdingsofthedomesticcurrency.

Asholdingsofthedomesticcurrencyfall,thedomesticcurrencywilldepreciate.

TradeApproach

Thetradeapproachtoexchangeratedeterminationfocusesontheroleofinternationaltradeindeterminingexchangerates.

Inthisapproach,theequilibriumexchangerateistheratethatbalancesimportsandexports.

Ifthenationhasatradedeficit,itscurrencywilldepreciate.

Ifthenationhasatradesurplus,itscurrencywillappreciate.

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PurchasingPowerParityTheory

KarlGustavCasselwasaSwedisheconomistandprofessorofeconomicsatStockholmUniversity.

MoneyandForeignExchangeafter1914,1922

吉林财经大学国际经济贸易Gu学stav院Ca 1945

吉林财经大学国际经济贸易学院

日星期三

TwoversionsofPPP

AbsolutePurchasingPowerParity

RelativePurchasingPowerParity

AbsolutePurchasingPowerParity

Theequilibriumexchangeratebetweentwocurrenciesisequaltotheratioofthepricelevelsinthetwonations.

RpP*

R---exchangerate

P---thegeneralpricelevelinthehomenation

P*---thegeneralpricelevelintheforeignnation.

Thelawofoneprice

Intheabsenceoftransportationcosts,tariffs,andotherbarrierstothe flowoftrade,thepriceofhomogenoustradedcommoditieswillbeequalizedinallmarkets.

Ifthisdoesnotoccur,thenprofitableopportunitiesfor

commodityarbitrageexist.

Ifthelawofonepriceholdsforallgoods,thenabsolutepurchasingpowerparitywillhold.

吉林财经大学国际经济贸易学院

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Problems

Differencesbetweenproducts

Transportationcostsandtradebarriers

Nontradedcommodities

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RelativePurchasingPowerParity

Thechangeintheexchangerateisequaltothedifferenceinthechangeinthepricelevels(ratesofinflation)ofthetwocountries.

R＝p－p*

. . .

.

R---percentagechangeintheexchangerate

.

p---rateofinflationinhomenation

.

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吉林财经大学国际经济贸易学院

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TheMonetaryModelofExchangeRates

Themonetarymodelofexchangeratespostulatesthattheexchangerateisdeterminedintheprocessofbalancingthedomesticdemandandsupplyofcurrency.

DemandFunctionforMoney

Md=kPY

k---multiplier

P---thegeneralpricelevelinthenationY---thelevelofreal einthenation

Md=Ms=kPYMd*=Ms*=k*P*Y*

P=Ms/kY

P*=Ms*/k*Y*

R= P

Ms/kY

──=─────

P* Ms*/k*Y*

Conclusions

Anincreaseinthenation’smoneysupplyleadstoanequaldepreciationofthenation’scurrencyinthelongrun.(p319)

InterestParityTheory(p301)

Interestparitytheorypostulatesthattheexchangerateisdeterminedbytheinterestarbitragecausedbythedifferenceofinterestratesinthetwonations.

Interestarbitragemeansthetransferofshort-termliquidfundsabroadtoearnahigherreturn.

Coveredinterestarbitrage（抛补）:aforeignexchangeriskiscovered.

Uncoveredinterestarbitrage（无抛补）

Anexampleofcoveredinterestarbitrage

Foreignnation

Interestrate---i*Spotrate---e

1/e×（1＋i*)

Domesticcurrency

1

Forwardrate---f

Homenation

Interestrate---i

Futureprofits：1＋i

Futureprofits：（1＋i*)f/e

Investmentbehaviordependsonthefutureprofitsinthetwonations:

1＋i>（1＋i*)f/e------investinhomenation

1＋i<（1＋i*)f/e------investinforeignnation

1＋i＝（1＋i*）f/e

fe

e

ii*

InterestParityTheory

Thechangeintheexchangerate