Key Results Of Testing For Ppp Essay

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This paper aims to compare the Japanese Yen against the US Dollar over a five year period starting from 2005 till 2010. The exchange traded fund for Japanese Yen shall also be discussed in the paper and afterwards an analysis of both the currencies shall be presented. There are different factors that influence the exchange rate differences between any two chosen currencies. The effects produced by these different exchange rates can be of quite different intensity. The most common elements that have an impact on exchange rate difference include economic factors, socio political factors and other behavioral or technical factors also. The macroeconomic factors such as growth of a country, employment rate, gross domestic product etc. All

There is some uncertainty about the demand for PIA's service in Pakistan, because it is difficult to estimate the impact of the expansion on the demand. Avicular Controls would now be more accessible to Pakistan's consumers, but the precise increase in the demand for cannot be easily forecasted. This demand is affected by future economic conditions and future competition. In addition to these factors, there is much uncertainty about the future exchange rate at which the funds will be converted into dollars. Again, the value of Pakistan's currency has been very volatile over time and has typically depreciated substantially against the dollar. Thus, it would be natural to estimate the dollar cash flows by assuming some degree of depreciation in Pakistan's currency, but there would still be much uncertainty regarding the degree of depreciation.

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Using micro-level data allows us to circumvent some empirical issues one would face when estimating the ERPT with aggregate price data . First, we can treat changes in the exchange rate as exogenous (Feinberg, 1996). Second, using aggregate price indices to measure ERPT might lead to some bias in the estimation, as prices of many goods do not change during these goods’ lifetime. Kim et al. (2013) indeed

There has been a long standing controversy among the economist about the validity of PPP (Purchasing Power Parity) in the long run. The parity reveals that prices in two different economies should be identical to each other when they expressed in terms of the same currency. It is a central building block in the monetary models of exchange rate determination. One of the most common practices, to test the validity of PPP is through unit root test of real exchange rate. In this paper unit root test has been done based on the data on Bangladesh and its major trading partner India, to see whether exchange rate has unit root or not. It has been found out that the PPP holds i.e. real exchange is not trend stationary in the

On the other hand, the Relative and Ex Ante PPP implies that exchanged rate between two countries is affected by their inflation rates and expressed as (CFA, 2015). In the long-run, the relative PPP predicts that countries with a low inflation rate have currency’s that tend to appreciate and conversely with countries that have a high inflation rate; and the % change in exchange rate will equal the % difference in national inflation rates (Baffes, 1991; Taylor and Taylor, 2004).

There are two ways to measure PPP. The first one is Absolute PPP (APPP) which states that the exchange rate between two countries should be equal to the price of a basket of items in two countries due to arbitrage, i.e. ∑▒p_i=E∑▒p_i^* , where E is the exchange rate. The second measure is Relative PPP (RPPP)

2. The relative purchasing power parity condition holds that prices in different countries will different by roughly the same amount over time. This condition is based on the idea that differences in prices from one country to another reflect differences in underlying cost factors, access to inputs, taxation and other country-specific variables. Specially excluded in this condition is the exchange rate. Over time, the condition assumes, the movements of interest rates and exchange rates will mean that there is parity in the prices of goods between the two countries. The condition assumes therefore that any differences in prices can be explained in terms of non-currency country-specific factors. In the short run, there is no such assumption. This is because there is sometimes a time lag with respect to price changes. While currency exchanges rates and interest rates can change quickly, price changes can be slower for a number of reasons. Moreover, some of the inputs costs might change but again there is a time lag for these changes. The condition of relative purchasing power parity, therefore, is said to exist mainly in the long run.

The methods of data analysis involve the use of descriptive statistics and correlation matrix test which helps in describing the nature of our data. In testing the hypothesis, the use of econometric techniques will employed as unit root test – ADF and co-integration test will be conducted. Co-integration test will be used to examine the stable long

where Et represents the nominal bilateral exchange rate, Pt* is the CPI in Japan, Pt means the Indian CPI.

Analyze the SR & LR relationship between Ms & P by cointegration test and VECM.

Some attention is necessary while employing FMOLS test. The variables under study must be cointegrated. So before applying the FMOLS we examine the cointegration by method of Johansen’s (1990) cointegration test. Prior to employing the Johansen’s Cointegration test we perform unit root test using ADF method.

Abstract This paper attempts to analyse Rp/US$ and Rp/Yen exchange rates over the period 1983.2-2000.3. Using the Box-Jenkins approach, we tested various models to explain the behavior of Rp/US$ and Rp/Yen. The results supported both interest rate parity and purchasing power parity hypotheses for Rp/US$ exchange rates. In the case of Rp/Yen, however, the results supported purchasing-power parity hypothesis rather than that of interest rate parity. Moreover, Frenkel-Bilson, Dornbusch-Frankel, HooperMorton model cannot be applied to analyse Rp/Yen fluctuation. This study, accordingly, calls an urgency to