Download 56a68c3071b7663b2065966b2f51ef12

CHAPTER 5
What Determines
Exchange Rates?
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
[teaching targets and demands]
 To make students master the concepts
such as the law of one price, and the
theories such as purchasing power
parity，the monetary approach and
exchange rate overshooting, including
their content, conclusion, law, and
advantages and disadvantages.

2
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
 [Teaching
key and difficult points]
 How to understand the law of
these theories and use them to
explain some actual economic
phenomena.
3
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
[out line ]
 A road map;
 Exchange rates in the short run: The role
of interest rates, The role of the expected
future spot exchange rate;
 The long run: Purchasing power parity:
The law of one price, Absolute purchasing
power parity, Relative purchasing power
parity;

4
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
The long run: The monetary approach:
Money, price, levels, and inflation, Money
and PPP combined, The effect of money
supplies on an exchange rate, The effect
of real incomes on an exchange rate;
 Exchange rate overshooting;
 How well can we predict exchange rates?

5
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Figure 5.1, Panel A
6
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Figure 5.1, Panel B
7
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Figure 18.2
8
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Purchasing Power Parity (PPP)
——购买力平价
 瑞典学者卡塞尔（G.Cassel）于1922年
出版了《1914年后的货币和外汇》一书，
提出“购买力平价说”。
 购买力平价说的思想：一国汇率水平和
变化是由本国货币与外国货币的购买力
对比决定的。
9
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Purchasing Power Parity (PPP)
——购买力平价

The Law of One Price（一价定律）:
A product that is easily and freely traded in a
perfectly competitive global market should have
the same price everywhere, once the prices at
different places are expressed in the same
currency.
P= e × Pf
Precondition: government permit free trade
in the commodity
10
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Purchasing Power Parity
If there are any differences, arbitrage
will occur.
You can see the example in the text, page
94.
 In practice: the law of one price doesn’t
hold closely for most products.

11
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Absolute Purchasing Power Parity
——绝对购买力平价

如果用同一种货币表示，不同国家的一揽子的贸易性
商品的成本（价格）是一样的。
 P= e ×

Pf P， Pf refer to the average
product price or price level. Then
e=P/ Pf 其中e为汇率，P为国内的一般物价水平，Pf
为国外的一般物价水平。
•
现实汇率调整到与购买力平价相等的水平是通过国际
商品套购行为实现的。

If the law of one price holds for all the
products, the Absolute Purchasing Power
Parity will also hold.
McGraw-Hill/Irwin
12
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Relative Purchasing Power Parity
——相对购买力平价

Relative Purchasing Power Parity: The
difference between changes overtime in productprice levels in two countries.

两国汇率的变化等于两国通货膨胀的差额，如果
本国通胀率高于外国，则本币贬值，反之，本币
升值。

推论(corollary)：如果两国货币为固定汇率，则
两国的通胀率应相等。
13
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Relative Purchasing Power Parity
——相对购买力平价
·
Changes over time (relative PPP):
From time 0 to time t:
Pt
P0
Pf,t . et
Pf,0 e0
14
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Relative Purchasing Power Parity
——相对购买力平价
--or-et
e0
Pt
P0
Pf,t
Pf,0
--or, approximately:
%e = %P - %Pf
15
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Key Implications of
Relative PPP

A country with a relatively high inflation
rate will have a depreciating currency.

A country with a relatively low inflation
rate will have an appreciating currency.

The rate of appreciation or depreciation
will be approximately equal to the
percentage-point difference in the
inflation rates.
16
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Relative PPP: Recent Experience
——购买力平价的检验
Conclusion：
Noticeable deviation from PPP in the
short run, but a tendency for PPP to
hold in the long run.
Additions:

1 长期比短期效果好（经济中许多价格具有粘性，需
要时间充分调整，所以违反购买力平价的现象比长期
更突出）
2 高速通胀期间效果更好（价格调整更快）
3 固定汇率比浮动汇率更好 （非价格影响因素太多）
17
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
The long Run: the Monetary Approach
——长期：货币分析法
In the long run, exchange rates are closely
related to the levels of price . What causes
the change of price and the inflation rate?
 One explain is that the money supply
theory.
 Exchange rate is the price of money in
different countries, which is related to the
money demand and supply too.

18
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Quantity theory of demand for money
(货币需求理论)

Quantity theory equation （货币均衡理论）
In any country the money supply is
equated to the money demand, which is
proportional to the money value of gross
domestic product.
Cambridge equation
Ms＝k × P × Y
Msf＝kf× Pf × Yf
19
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
e=P/Pf=(Ms/ Msf) × (kf/k) × (Yf/Y)
 The effect of money supply on an
exchange rate.
 If the supply of pounds is cut 10%,
pounds would has 10% higher
exchange rate value.
 If the supply of dollars is added 10%,
dollars would has 10% lower exchange
rate value.
 If both of them cut (or added), there
should have no effect on the exchange
rate.

McGraw-Hill/Irwin
20
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.




The effect of real income on an exchange
rate.
British productivity increase 10%, lead to 10%
increase in real British national income, if the
money supply is not change, the price must
decline 10%, eventually, leading to a rise in
the value of pounds.
A 10% decline in US real income should raise
e by 10%.
Both have 10% rise in incomes, the exchange
rate is not changed.
21
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Exchange Rate Overshooting
——汇率超调
货币分析法的一个重要假设是价格弹性，但大多数经济学
家，尤其是凯恩斯主义经济学家并不满意这个假设。他们
认为在长期货币分析法的结果是成立的，但在短期，由于
价格并非弹性而是粘性，所以这样的分析并不完整，因此
应该把注意力转向汇率调整的过程，开创了汇率动态学
假设：
 价格长期弹性，短期粘性
 理性预期，投资者能准确预期到长期均衡汇率
 未抛补利率平价成立

22
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Exchange Rate Overshooting
——汇率超调


假设在初始状态，本国利率与外国利率相等，都是0.05，
而本币与外币汇率为1，预期汇率也是1，这必然满足未抛
补利率平价条件
0.05＝0.05＋（1－1）/1
现在本国将名义货币供给增加1倍，在长期内，本国利率
不变，本国货币将贬值，汇率为2，在理性预期假设下，
市场投资者将汇率预期调整到2。
但是在短期内，本国利率将下降，假设下降到0.03，这时
外汇市场还要满足未抛补利率平价条件：
0.03＝0.05+(2-e)/e
e=2.04
即期汇率立即调整到预期之上
23
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Figure 5.5
24
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Real Exchange Rate
The real exchange rate is the exchange rate
between countries’ currencies adjusted for
product prices in the countries (all relative to
their values in some base year).
Movements in the real exchange rate over time
are an indicator of deviations from relative
PPP.
Movements in the real exchange rate over time
are an indicator of changes in the
international price competitiveness
of a
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
25
26
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.