DOES THE EXCHANGE RATE OF YOUR DATA APPEAR TO SUPPORT THE THEORY OF PURCHASING POWER PARITY?

Does the exchange rate of your data appear to support the theory of Purchasing Power Parity?

Requirements:

• 2 page descriptive analysis; • Graph of Nominal Exchange Rate and Relative Prices over time (Figure 16-2 from text, “The Yen/Dollar Exchange Rate and Relative Japan-US Price Levels, 1980-2012,” is a good model); FINAL DRAFT (5 pages. You must have a thesis statement).

Approximately 5 pages of text (double-spaced, either 11 or 12 point font). The final draft is a refinement of the first draft. There should be no need for additional graphs, though you may have to correct your graphs from the first draft. Discuss your country’s macroeconomic state over the period in question. Is your country successful (relative to the base country)? Is it fully engaged in the global economy? What is the Exchange Rate policy? Is the currency over-valued or undervalued? Does the real exchange rate appear to be driven by relative prices (as implied by PPP), or does it appear to be driven by policy, or by the relative prospects of your country in the global economy? Does the RER appear to affect the Current Account? Your goal is to try to explain movements in Real GDP and the exchange rate by the movements of the other series. Notes on Graphs Only use the sources below for data: World Development Indicators http://databank.worldbank.org/data/reports.aspx?source=world-development-indicators International Financial Statistics

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