克鲁格曼国际经济学第六版的教师手册含英文习题答案imch15.docx

1、克鲁格曼国际经济学第六版的教师手册含英文习题答案imch15CHAPTER 15 Price Levels and the Exchange Rate in the Long Run Chapter OrganizationThe Law of One PricePurchasing Power ParityThe Relationship Between PPP and the Law of One PriceAbsolute PPP and Relative PPPA Long-Run Exchange-Rate Model Based on PPPThe Fundamental Equa

2、tion of the Monetary ApproachOngoing Inflation, Interest Parity, and PPPThe Fisher EffectEmpirical Evidence on PPP and the Law of One PriceBox: Some Meaty Evidence on the Law of One PriceExplaining the Problems with PPPTrade Barriers and NontradablesDepartures from Free CompetitionBox: Hong Kongs Su

3、rprisingly High InflationInternational Differences in Price Level MeasurementPPP in the Short Run and in the Long RunBox: Sticky Prices and the Law of One Price: Evidence From Scandinavian Duty-free ShopsCase Study: Why Price Levels are Lower in Poorer CountriesBeyond Purchasing Power Parity: A Gene

4、ral Model of Long-Run Exchange RatesThe Real Exchange RateDemand, Supply, and the Long-Run Real Exchange Rate Nominal and Real Exchange Rates in Long-Run EquilibriumCase Study: Why Has the Yen Keep Rising?International Interest Rate Differences and the Real Exchange RateReal Interest ParitySummaryAp

5、pendix: The Fisher Effect, the Interest Rate, and the Exchange Rate under the Flexible-Price Monetary ApproachChapter Overview The time frame of the analysis of exchange rate determination shifts to the long run in this chapter. An analysis of the determination of the long-run exchange rate is requi

6、red for the completion of the short-run exchange rate model since, as demonstrated in the previous two chapters, the long-run expected exchange rate affects the current spot rate. Issues addressed here include both monetary and real-side determinants of the long-run real exchange rate. The developme

7、nt of the model of the long-run exchange rate touches on a number of issues, including the effect of ongoing inflation on the exchange rate, the Fisher effect, and the role of tradables and nontradables. Empirical issues, such as the breakdown of purchasing power parity in the 1970s and the correlat

8、ion between price levels and per capita income, are addressed within this framework. The law of one price, which holds that the prices of goods are the same in all countries in the absence of transport costs or trade restrictions, presents an intuitively appealing introduction to long-run exchange r

9、ate determination. An extension of this law to sets of goods motivates the proposition of absolute purchasing power parity. Relative purchasing power parity, a less restrictive proposition, relates changes in exchange rates to changes in relative price levels and may be valid even when absolute PPP

10、is not. Purchasing power parity provides a cornerstone of the monetary approach to the exchange rate, which serves as the first model of the long-run exchange rate developed in this chapter. This first model also demonstrates how ongoing inflation affects the long-run exchange rate.The monetary appr

11、oach to the exchange rate uses PPP to model the exchange rate as the price level in the home country relative to the price level in the foreign country. The money market equilibrium relationship is used to substitute money supply divided by money demand for the price level. The Fisher relationship a

12、llows us to substitute expected inflation for the nominal interest rate. The resulting relationship models the long-run exchange rate as a function of relative money supplies, the inflation differential and relative output in the two countries; E = (M/M*)l(pe - p*e, (Y*/Y)The l function represents t

13、he ratio of foreign to domestic money demand; thus, both the difference in expected inflation rates and the output ratio enter the function with a positive sign. An increase in inflation at home means higher home interest rates (through the Fisher equation) and lower home money demand. An increase i

14、n foreign output raises foreign money demand.One result from this model that students may find initially confusing concerns the relationship between the long-run exchange rate and the nominal interest rate. The model in this chapter provides an example of an increase in the interest rate associated

15、with exchange rate depreciation. In contrast, the short-run analysis in the previous chapter provides an example of an increase in the domestic interest rate associated with an appreciation of the currency. These different relationships between the exchange rate and the interest rate reflect differe

16、nt causes for the rise in the interest rate as well as different assumptions concerning price rigidity. In the analysis of the previous chapter, the interest rate rises due to a contraction in the level of the nominal money supply. With fixed prices, this contraction of nominal balances is matched b

17、y a contraction in real balances. Excess money demand is resolved through a rise in interest rates which is associated with an appreciation of the currency to satisfy interest parity. In this chapter, the discussion of the Fisher effect demonstrates that the interest rate will rise in response to an

18、 anticipated increase in expected inflation due to an anticipated increase in the rate of growth of the money supply. There is incipient excess money supply with this rise in the interest rate. With perfectly flexible prices, the money market clears through an erosion of real balances due to an incr

19、ease in the price level. This price level increase implies, through PPP, a depreciation of the exchange rate. Thus, with perfectly flexible prices (and its corollary PPP), an increase in the interest rate due to an increase in expected inflation is associated with a depreciation of the currency. Emp

20、irical evidence presented in the chapter suggests that both absolute and relative PPP perform poorly for the period since 1971. Even the law of one price fails to hold across disaggregated commodity groups. The rejection of these theories is related to trade impediments (which help give rise to nont

21、raded goods and services), to shifts in relative output prices and to imperfectly competitive markets. Since PPP serves as a cornerstone for the monetary approach, its rejection suggests that a convincing explanation of the long-run behavior of exchange rates must go beyond the doctrine of purchasin

22、g power parity. The Fisher effect is discussed in more detail and accompanied by a diagrammatic exposition in an appendix to the chapter. A more general model of the long-run behavior of exchange rates in which real-side effects are assigned a role concludes the chapter. The material in this section

23、 drops the assumption of a constant real exchange rate, an assumption that you may want to demonstrate to students is necessarily associated with the assumption of PPP. Motivating this more general approach is easily done by presenting students with a time series graph of the recent behavior of the

24、real exchange rate of the dollar which will demonstrate large swings in its value. The real exchange rate, q, is the ratio of the foreign price index, expressed in domestic currency, to the domestic price index, or, equivalently, E = q(P/P*). The chapter includes an informal discussion of the manner

25、 in which the long run real exchange rate, q, is affected by permanent changes in the supply or demand for a countrys products. ANSWERS TO TEXTBOOK PROBLEMS1. Relative PPP predicts that inflation differentials are matched by changes in the exchange rate. Under relative PPP, the franc/ruble exchange

26、rate would fall by 95 percent with inflation rates of 100 percent in Russia and 5 percent in Switzerland. 2. A real currency appreciation may result from an increase in the demand for nontraded goods relative to tradables which would cause an appreciation of the exchange rate since the increase in t

27、he demand for nontradables raises their price, raising the domestic price level and causing the currency to appreciate. In this case exporters are indeed hurt, as one can see by adapting the analysis in Chapter 3. Real currency appreciation may occur for different reasons, however, with different im

28、plications for exporters incomes. A shift in foreign demand in favor of domestic exports will both appreciate the domestic currency in real terms and benefit exporters. Similarly, productivity growth in exports is likely to benefit exporters while causing a real currency appreciation. If we consider

29、 a ceterus paribus increase in the real exchange rate, this is typically bad for exporters as their exports are now more expensive to foreigners which may reduce foreign export demand. In general, though, we need to know why the real exchange rate changed to interpret the impact of the change.3. a.

30、A tilt of spending towards nontraded products causes the real exchange rate to appreciate as the price of nontraded goods relative to traded goods rises (the real exchange rate can be expressed as the price of tradables to the price of nontradables). b. A shift in foreign demand towards domestic exp

31、orts causes an excess demand for the domestic countrys goods which causes the relative price of these goods to rise; that is, it causes the real exchange rate of the domestic country to appreciate.4. Relative PPP implies that the pound/dollar exchange rate should be adjusted to offset the inflation

32、difference between the United States and Britain during the war. Thus, a central banker might compare the consumer price indices in the United States and the U.K. before and after the war. If Americas price level had risen by 10 percent while that in Britain had risen by 20 percent, relative PPP would call for a pound/dollar exchange rate 10 percent higher than before the war-a 10 percent depreciation of the pound against the dollar. A comparison based only on PPP would fall short of the task at hand, however, if it ignored possible changes in productivity, productive capacity or in relat