IFchapter 8B Forex II国际金融论第八章第二节.docx
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IFchapter 8B Forex II国际金融论第八章第二节.docx
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IFchapter8BForexII国际金融论第八章第二节
IF2008–Chapter8B
HowistheExchangeRatesDetermined?
I.InternationalParityTheory
¢TheLawofOnePriceforOneGood
¢InterestRateParityTheory
¢PurchasingPowerParityTheory
¢FisherEffect
¢ExpectationTheory
¢InternationalFisherEffect
II.MacroeconomicApproaches
¢BalanceofPaymentApproach(KeynesianModel)
1.theElasticityApproachModel
2.Mundell-FlemmingModel
¢CapitalMarketApproach
3.theFlexiblePriceModel
4.OvershootingTheory(DornbuschTheory;theStickyPriceModel)
5.PortfolioBalanceTheory
¢OtherApproaches
6.laTheoriePsycologiqueduChange
7.NewsModel
I.InternationalParityTheory
¢TheLawofOnePriceforOneGood
¢Thislawstatesthatidenticalgoodsmusthaveidenticalprices
8.Thislawstipulatesthattwomarketsareintegratedwhenidentical
goodsorassetsarepricedidenticallyacrossborders
¢Thistheoryimpliescompetitivemarket:
◆Nobarrierstotrade
◆Notransactioncost
◆Perfectinformation
¢Example:
✓anounceofgoldshouldhavethesameprice(expressedin
U.S.dollars)inLondonasitdoesinZurich
✓otherwisegoldwouldflowfromonecitytotheother
(theroleofarbitragers)
¢PurchasingPowerParityTheory
¢Spotexchangeratesbetweencurrencieswillchangetothedifferentialininflationratesbetweencountries
.
¢ABSOLUTEPURCHASINGPOWERPARITY
9.Pricelevelsadjustedforexchangeratesshouldbeequalbetweencountries
10.Oneunitofcurrencyhassamepurchasingpowerglobally.
11.
¢RELATIVEPURCHASINGPOWERPARITY
12.theexchangerateofonecurrencyagainstanotherwilladjusttoreflectchangesinthepricelevelsofthetwocountries.
13.Inmathematicalterms:
et=futurespotrate
e0=spotrate
ih=homeinflation
if=foreigninflation
t=thetimeperiod
14.
Ifpurchasingpowerparityisexpectedtohold,thenthebestpredictionfortheone-periodspotrateshouldbe
15.Amoresimplifiedbutlesspreciserelationshipis
16.thepercentagechangeshouldbeapproximatelyequaltotheinflationratedifferential.
¢PPPsaysthat
17.Thecurrencywiththehigherinflationrateisexpectedtodepreciaterelativetothecurrencywiththelowerrateofinflation.
◆BigMacIndex(BMI)
●BMIisbasedonthetheoryofpurchasing-powerparity
●Thenotion:
adollarshouldbuythesameamountinallcountries.
●Inthelongrun,theexchangeratebetweentwocountriesshouldmovetoward
theratethatequalizesthepricesofanidenticalbasketofgoodsandservicesineachcountry
●The"basket"isaMcDonald'sBigMac,whichisproducedinabout120countries
●TheBigMacPPPistheexchangeratethatwouldmeanhamburgerscostthe
sameintheUnitedStatesasabroad.
●ComparingactualexchangerateswithPPPsindicateswhetheracurrencyis
under-orovervalued.
●Example:
NewYork:
$3.10
Beijing:
15.5RMB(=$2.15)
BigMacPPP=$2.15/$3.10*100=69.3%
30.7%under-valued
●TheEconomist’sBigMacPriceIndex(2006)
⏹US$3.10
⏹UK£1.94$3.82
⏹Japan¥250$2.11
⏹SwissSfr6.30$5.18
⏹EuroArea€2.94$3.88
⏹China10.5RMB$1.34
¢InterestRateParityTheory
¢TheTheorystates:
18.theforwardrate(F)differsfromthespotrate(S)atequilibriumbyanamountequaltotheinterestdifferential(rh-rf)betweentwocountries.
¢Theforwardpremiumordiscountequalstheinterestratedifferential.
(F-S)/S=(rh-rf)
rh=thehomerate
rf=theforeignrate
¢
Inequilibrium,returnsoncurrencieswillbethesame
-Noprofitwillberealizedandinterestparityexistswhichcanbewritten
¢InterestRateParitystates:
1.Higherinterestratesonacurrencyoffsetbyforwarddiscounts.
2.Lowerinterestratesareoffsetbyforwardpremiums.
¢FisherEffect
¢FisherEffectstates:
19.Nominalinterestrates(r)areafunctionoftherealinterestrate(a)andapremium(i)forinflationexpectations.
R=a+i
¢RealRatesofInterest
1.Shouldtendtowardequalityeverywherethrougharbitrage.
2.Withnogovernmentinterferencenominalratesvarybyinflationdifferential
rh-rf=ih-if
¢AccordingtotheFisherEffect,
20.countrieswithhigherinflationrateshavehigherinterestrates
¢Duetocapitalmarketintegrationglobally,interestratedifferentialsareeroding.
¢ExpectationTheory(THEUNBIASEDFORWARDRATEMODEL)
¢ExpectationTheorystates
✓Iftheforwardrateisunbiased,thenitshouldreflecttheexpectedfuturespotrate.
✓Statedas
ft=et
¢TheoryImplication:
Market-BasedForecast
✓Thecurrentforwardratecontainsimplicitinformationaboutexchangeratechangesforoneyear.
✓Interestratedifferentialsmaybeusedtopredictexchangeratesbeyondoneyear.
¢InternationalFisherEffect(IFE)
¢IFESTATES:
21.thespotrateadjuststotheinterestratedifferentialbetweentwocountries
22.IFE=PPP+FE
¢SimplifiedIFEequation:
(ifrfisrelativelysmall)
¢Fisherpostulated
1.Thenominalinterestratedifferentialshouldreflecttheinflationrate
differential
2.Expectedratesofreturnareequalintheabsenceofgovernmentintervention.
¢ImplicationsofIFE
1.Currencywiththelowerinterestrateisexpectedtoappreciaterelativetothe
onewithahigherrate.
2.Financialmarketarbitrageinsuresinterestratedifferentialisanunbiasedpredictorofchangeinfuturespotrate.
INTERNATIONALPARITYTHEORY-SUMMARY
InflationRates
Differential
Ph^-Pf^
InterestRates
Differential
ih–if
FisherEffect
PurchasingPowerParity
InterestRateParityTheory
InternationalFisherEffect
ExpectedChangeof
SpotRate
(S^-S)/S
DifferentialinSpotRate&ForwardRate
(F–S)/S
Expectation
Theory
III.MacroeconomicApproaches
A.BalanceofPaymentAccount
¢BalanceofPayment(BOP)Account
1.recordalltheeconomictransactionsinaspecifictimeintervalbetweenresidentsofacountryandtherestoftheworld.
¢Twotypesoftransactions:
1.CurrentAccount:
Transactionsthatinvolvesgoodsandservices
2.CapitalAccount:
Transactionsthatinvolvesassets
◆Paymenttoforeigners:
debit(-)
◆Receiptfromforeigners:
credit(+)
¢BalanceofPaymentApproach(KeynesianModel)
a)TheElasticityApproachModel(CurrentAccountcentered)
S=f(P/P*,Y-Y*,r-r*,Z)
S:
exchangerate
P:
domesticpricelevelP*:
foreigncountry’spricelevel
Y:
domesticrealincomeY*:
foreigncountry’srealincome
r:
domesticinterestrater*:
foreigncountry’sinterestrate
z:
otherfactors
●
ForeignCurrency
SupplyDOWN
DemandUP
ImportUP
ExportDOWN
ExchangeRate
UP
Domestic
Price
UP
TheImpactofDomesticPriceLevelChange
●TheImpactofDomesticIncomeChange
NationalIncomeUPImportDemandUPCurrentAccount(-)
ExchangeRateUP
●TheImpactofInterestRateChange
InterestRateUPForeignCurrencies(+)ExchangeRateDOWN
b)Mundell-FlemingModel(CapitalAccountConsidered)
●TheMundell-Flemingmodelfocusesontheshorttomediumrun
●Themodellaysoutthepolicyoptionsandtheresponsestoinsideandoutsideshocksforanopeneconomythatinteractswithothercountriesviatradeingoodsandservicesaswellascross-bordercapitalflows.
●BP=CA+KA=(X–IM)+k(r–r*)=0
k:
capitalflowsensitivitytointerestratedifferentials
●Thedifferentialofinterestratesimpactstheflowofthecapitalaccount
IV.CapitalMarketApproach
1.theFlexiblePriceModel
◆FocusonMoneySupplyandDemandamongvariousfinancialassets
◆Pricesaresufficientlyflexiblemarketclearsallthechangeseffectively
◆ConditionsforBalance
✧DomesticMarket:
M/P=L(Y,r)
✧ForeignMarket:
M*/P*=L*(Y*,r*)
M:
moneysupply,L:
moneydemand
✧Then,
S=P/P*=M/M*×[L*(Y*,r*)/L(Y,r)]
✧Accordingtothismodel
⏹DomesticmoneysupplyUPExchangeRageUP
⏹DomesticincomeUPMoneyDemandUP
DomesticCurrencyValueUPExchangeRateDOWN
(theoppositeresultfromKeynsianModel)
b)OvershootingTheory(DornbuschTheory;theStickyPriceModel)
¢Dornbuschmodelisaanhybrid:
✓short-runfeaturesastheMundell-Flemingmodel
✓long-runfeaturesasintheMonetaryModel.
¢Stickypricemodel:
✓pricesarefixedintheshortrun
✓theyadjustslowlytowardsthelongrunequilibrium
¢Mainfeatures:
✓dichotomybetweenspeedofadjustmentin
◆goods-slow
◆financialmarkets–instantaneous
¢Mainresult:
overshooting
✓Instabilityofexchangeratescanbetheresultofinteractionofsluggish
adjustmentongoodsmarkets/instantaneousadjustmentonassetmarkets
P1
P0
S0S1S2
Exchange
Rate
Price
S=P–P*
◆Initialbalance–(P0,S0)
◆MoneySupplyUPlong-termequilibriummovesalongtheS=P–P*(45°)
◆Long-TermEquilibrium–(P1,S1)
◆Duetothestikypriceofgoods,pricelevelmaintainsatP0
◆Then,theincreaseinmoneysupplyresultsinthelowerinterestrateintheshort-term
◆ExchangeratewillbehighertoS2(‘overshooting’)
◆Short-termequilibrium–(P0,S2)
◆
S2
S1
S0
ExchangeRate
Astimepassesby,thepricesofgoodsrise,theequilibriummovestolong-termequilibrium(P1,S1)
Time
c)PortfolioBalanceTheory
¢Thistheoryco
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