摘要:本文是旨在对美元和英镑的汇率分析的留学生论文,本文试图参考关于购买力平价的丰富的文献资料,分别调查世界上最发达的两个经济体——美国和英国长期购买力平价的总体情况。
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constitution of the country, lifestyles, expectations, culture, religion and etc. The “developed” status of both the countries entails that they exist in an open economic environment where the flow of information is efficient and unrestricted. More often, consumers in these countries have no restriction on their choices of similar goods from not just the local market but also from foreign countries. As mentioned in previous section, Purchasing Power Parity (PPP) theory states that “in the absence of transaction costs and barriers to trade, the nominal exchange rate between two countries should be equal to the aggregate price levels of the respective countries.” As such, this pre-requisite condition for PPP theory is “best” fulfilled in these two countries and as a result makes these countries excellent subjects for the detailed examination of PPP in the long run.
3. Research Design and Sample
3.1 Descriptive
statistics of Data
The sample data for our analysis comprises of 507 monthly observations for the period of 1968 to 2010. The information is extracted from Thomson Data-Stream which provides historical data of U.S and UK exchange rate and respective consumer price index (CPI).
Figure 1 illiustrate the time series of nominal USD/ GBP exchange rate and the relative CPI of U.S over UK. It will be beneficial to mention that this dataset also includes the period under Bretton –woods agreement where the Pounds was fixed to the Dollars. It was eventually abolished and allowed to float in the 1971.
From the figure, we can see that after the abolishment of the Bretton-Woods agreement in 1971, the movement of the exchange rate ($/ £) has been erratic and volatile. The exchange rate reduced significantly and on a downward trend since 1971 and hitting its lowest exchange rate of 1.09 in 1985. After 1985, the exchange rate became less volatile and fluctuated within the 1.50 to 1.80 band. As the result of the recent financial crisis, the pound The GBP collapsed at 2009 against to USD, falling from a high of $2.0736/ £
in Oct 2007 to $1.523/ £ in Feb 2010.
Figure 1: USD/GBP nominal exchange rate and US/UK CPI Ratio (1968 to 2010)
The theory of Relative PPP states that the depreciation/ appreciation of the currency level should be matched by a proportional changes to the differences between the domestic and foreign inflation rates. As a result, the USD/GBP exchange rate and relative price levels of both U.S and UK should move proportionally and in the same direction. Going back to Figure 1, it has been have observed that the movement of the exchange rate ($/£) and the relative price levels does not move in the same direction in most periods. Moreover, the magnitude of the change between the two time series varies significantly where the exchange rate movement is larger and more volatile than the relative price ratio. This explicitly implies that the relative PPP does not hold and there are significant deviations in the short run.
3.2 Empirical Framework
This section will describe the empirical design that this study employ to investigate the convergence of the exchange rates to the PPP theory. Our analysis will examine the following hypothesis;
H0: PPP does not hold in the long run
H1: PPP holds in the long run
The nominal exchange rate, Et is calculated as;
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