利息率与汇率的关系
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Confounding Effects
International Fisher Effect (IFE)
Uses interest rates rather than inflation differentials to explain exchange rate
But it is closely related to PPP because interest rates are often highly correlated with inflation rates
The spot rate of one currency with respect to another will change in reaction to inflation differential
PPP
Relative PPP
2. Rationale behind Purchasing Power Parity Theory: Exchange rate adjustment is necessary for the
relative purchasing power to be the same whether buying products locally or from another country Appreciation/Depreciation of future exchange rate = Inflation differential Refer to e.g. in p.234
economy or attract inflow of funds (d) Depends on the country’s foreign reserves: China
IFEΒιβλιοθήκη ComparisonIRP
Summary
Theory IRP
PPP IFE
Key Variables
Forward rate premium/discount and interest rate differentials % in spot rate and inflation differential
Refer to p.244 for e.g. and Exhibit 8.5
IFE
Derivation of IFE
ef = [(1 + iH)/(1 + iF)] – 1 ef is % in the value of foreign currency denominating the
Movement
Confounding Effects
e f (INF, INT, INC, GC, EXP) w here e percentagechangein the spot rate INF changein the differential between U.S.inflation and the foreign country's inflation INT changein the differential between the U.S.interest rate and the foreign country's interest rate INC changein the differential between the U.S.incomelevel and the foreign country's incomelevel GC changein governmentcontrols EXP changein expectations of futureexchangerates
strengthen due to inflow of fund (b) Investors might not believe that high interest rate is
due to higher expected inflation rate (c) Central bank increase interest rate to cool down
Fisher’s effect state: Real interest rate = Nominal interest rate minus expected inflation rate
IFE suggests that currencies with high interest rates will have high inflation rates and therefore will be expected to depreciate
Relative PPP
Derivation of PPP
ef = [(1+Ih)/(1+If)] – 1
ef = % change in foreign currency
Ih = Inflation of home country
If = Inflation of foreign country
Relationship Between Inflation, Interest Rates and Exchange Rates
Learning Outcomes
Learning outcomes for Lecture 7:
A. Discuss the purchasing power parity (PPP) theory and its implications for exchange rate changes
security iH is home interest rate iF is foreign interest rate iH > iF, ef will be positive because the relatively low foreign
interest rate reflects low inflationary expectations in the foreign country, foreign currency will appreciate (forward premium) iH < iF, ef will be negative because the relatively high foreign interest rate reflects high inflationary expectations in the foreign country, foreign currency will depreciate (forward discount)
If Ih < If, ef is negative, foreign currency will
depreciate
Derivation
Derivation of PPP
4. Using PPP to Estimate Exchange Rate Effects: Refer to p.235-236 for e.g. a. Using a Simplified PPP Relationship, whereby, ef = Ih – If b. Exhibit 8.1 p.237 summarizes PPP
Product Life Cycle
IFE
Refer to Exhibit 8.6 p.247 for summary of IFE Refer to p.246-247 for e.g. Simplified relationship: ef = iH – iF, that is the percentage change in
Learning Outcomes
Purchasing Power Parity (PPP)
1. Interpretations of Purchasing Power Parity a. Absolute Form of PPP: It suggests that prices of the same basket of products in 2 different countries should be equal when measure in a common currency. Realistically, the existence of transportation costs, tariffs and quotas prevent absolute PPP b. Relative Form of PPP: State that the rate of change in the prices of the baskets should be somewhat similar when measured in a common currency, as long as transportation costs and trade barriers are unchanged
The formula reflects the relationship between relative inflation rates and exchange rates according to PPP
If Ih > If, ef is positive, foreign currency will appreciate
B. Discuss the International Fisher effect (IFE) theory and its implications for exchange rate changes
C. Compare the PPP theory, the IFE theory, and the theory of interest rate parity (IRP), which was introduced in the previous chapter
Commodities
Graphic Analysis of PPP
5. Graphic Analysis: a. PPP Line b. Purchasing Power Disparity
Graphic
PPP Line
Triangular Arbitrage
Purchasing Power Disparity
exchange rate over the investment horizon will equal interest rates differentials between 2 countries, approximation
IFE
IFE
Graphic Analysis of the International Fisher Effect (IFE) a. Points on the IFE Line b. Points below the IFE Line c. Points above the IFE Line
% in spot rate and interest rate differential
Summary
The forward rate of one currency with respect to another will contain premium or discount that is determined by interest rate differential.
IFE
Illustration of IFE Line (When Exchange Rate Changes Perfectly Offset Interest
Rates Differentials)
IFE Line
IFE
Why the international Fisher Effect Does Not Occur: (a) In reality currency with high interest rates might
International Fisher Effect (IFE)
Uses interest rates rather than inflation differentials to explain exchange rate
But it is closely related to PPP because interest rates are often highly correlated with inflation rates
The spot rate of one currency with respect to another will change in reaction to inflation differential
PPP
Relative PPP
2. Rationale behind Purchasing Power Parity Theory: Exchange rate adjustment is necessary for the
relative purchasing power to be the same whether buying products locally or from another country Appreciation/Depreciation of future exchange rate = Inflation differential Refer to e.g. in p.234
economy or attract inflow of funds (d) Depends on the country’s foreign reserves: China
IFEΒιβλιοθήκη ComparisonIRP
Summary
Theory IRP
PPP IFE
Key Variables
Forward rate premium/discount and interest rate differentials % in spot rate and inflation differential
Refer to p.244 for e.g. and Exhibit 8.5
IFE
Derivation of IFE
ef = [(1 + iH)/(1 + iF)] – 1 ef is % in the value of foreign currency denominating the
Movement
Confounding Effects
e f (INF, INT, INC, GC, EXP) w here e percentagechangein the spot rate INF changein the differential between U.S.inflation and the foreign country's inflation INT changein the differential between the U.S.interest rate and the foreign country's interest rate INC changein the differential between the U.S.incomelevel and the foreign country's incomelevel GC changein governmentcontrols EXP changein expectations of futureexchangerates
strengthen due to inflow of fund (b) Investors might not believe that high interest rate is
due to higher expected inflation rate (c) Central bank increase interest rate to cool down
Fisher’s effect state: Real interest rate = Nominal interest rate minus expected inflation rate
IFE suggests that currencies with high interest rates will have high inflation rates and therefore will be expected to depreciate
Relative PPP
Derivation of PPP
ef = [(1+Ih)/(1+If)] – 1
ef = % change in foreign currency
Ih = Inflation of home country
If = Inflation of foreign country
Relationship Between Inflation, Interest Rates and Exchange Rates
Learning Outcomes
Learning outcomes for Lecture 7:
A. Discuss the purchasing power parity (PPP) theory and its implications for exchange rate changes
security iH is home interest rate iF is foreign interest rate iH > iF, ef will be positive because the relatively low foreign
interest rate reflects low inflationary expectations in the foreign country, foreign currency will appreciate (forward premium) iH < iF, ef will be negative because the relatively high foreign interest rate reflects high inflationary expectations in the foreign country, foreign currency will depreciate (forward discount)
If Ih < If, ef is negative, foreign currency will
depreciate
Derivation
Derivation of PPP
4. Using PPP to Estimate Exchange Rate Effects: Refer to p.235-236 for e.g. a. Using a Simplified PPP Relationship, whereby, ef = Ih – If b. Exhibit 8.1 p.237 summarizes PPP
Product Life Cycle
IFE
Refer to Exhibit 8.6 p.247 for summary of IFE Refer to p.246-247 for e.g. Simplified relationship: ef = iH – iF, that is the percentage change in
Learning Outcomes
Purchasing Power Parity (PPP)
1. Interpretations of Purchasing Power Parity a. Absolute Form of PPP: It suggests that prices of the same basket of products in 2 different countries should be equal when measure in a common currency. Realistically, the existence of transportation costs, tariffs and quotas prevent absolute PPP b. Relative Form of PPP: State that the rate of change in the prices of the baskets should be somewhat similar when measured in a common currency, as long as transportation costs and trade barriers are unchanged
The formula reflects the relationship between relative inflation rates and exchange rates according to PPP
If Ih > If, ef is positive, foreign currency will appreciate
B. Discuss the International Fisher effect (IFE) theory and its implications for exchange rate changes
C. Compare the PPP theory, the IFE theory, and the theory of interest rate parity (IRP), which was introduced in the previous chapter
Commodities
Graphic Analysis of PPP
5. Graphic Analysis: a. PPP Line b. Purchasing Power Disparity
Graphic
PPP Line
Triangular Arbitrage
Purchasing Power Disparity
exchange rate over the investment horizon will equal interest rates differentials between 2 countries, approximation
IFE
IFE
Graphic Analysis of the International Fisher Effect (IFE) a. Points on the IFE Line b. Points below the IFE Line c. Points above the IFE Line
% in spot rate and interest rate differential
Summary
The forward rate of one currency with respect to another will contain premium or discount that is determined by interest rate differential.
IFE
Illustration of IFE Line (When Exchange Rate Changes Perfectly Offset Interest
Rates Differentials)
IFE Line
IFE
Why the international Fisher Effect Does Not Occur: (a) In reality currency with high interest rates might