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notes 3 - Exchange Rates and the Foreign Exchange Market An...

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Exchange Rates and the Foreign Exchange Market: An Asset Approach Viktoria Hnatkovska week 2 1
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Outline ° What determines exchange rates? ° Exchange rates in the short-run ° Exchange rates in the long-run ° Readings: Krugman and Obstfeld, Chapters 13-15. 2
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Exchange rates in the short-run ° Exchange rate as an asset price ° Interest parities ° Forward premium puzzle ° Money, interest rates and exchange rates Exchange rates in the long-run ° Money, interest rates and exchange rates ° Purchasing power parity ° Real exchange rates and productivity: Balassa-Samuelson 3
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Daily exchange rates: CAD, EUR, GBP per 1 USD 0.4 0.6 0.8 1 1.2 1.4 1.6 1/3/2000 5/3/2000 9/3/2000 1/3/2001 5/3/2001 9/3/2001 1/3/2002 5/3/2002 9/3/2002 1/3/2003 5/3/2003 9/3/2003 1/3/2004 5/3/2004 9/3/2004 1/3/2005 5/3/2005 9/3/2005 1/3/2006 5/3/2006 9/3/2006 1/3/2007 5/3/2007 9/3/2007 1/3/2008 CAD (Canada Dollar) EUR (European Monetary Union Euro) GBP (United Kingdom Pound) 4
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