Exchange Rate Determinants Using a Reduced Form of Purchasing Power Parity Model with Relative Prices of Non-tradable and FM-OLS Cointegration Methodology

2017 ◽  
Vol 13 (2) ◽  
pp. 255-276
Author(s):  
Hyun-Jae Rhee ◽  
Keyword(s):  
Exchange Rate ◽  
Purchasing Power Parity ◽  
Reduced Form ◽  
Purchasing Power ◽  
Power Parity ◽  
Relative Prices

scholarly journals Exchange Rate Appreciation, International Competitiveness And Purchasing Power Parity: The Shiomi Company Of Japan

2016 ◽  
Vol 12 (3) ◽  
pp. 135-144
Author(s):  
John F. Boschen
Keyword(s):  
Exchange Rate ◽  
Purchasing Power Parity ◽  
Financial Management ◽  
Nominal Exchange Rate ◽  
Purchasing Power ◽  
Power Parity ◽  
Consumer Prices ◽  
The Us ◽  
Cost Competitiveness ◽  
International Financial Management

In 2011 the ongoing appreciation in the yen against the US$ led Japanese firm Shiomi to consider relocating its production facilities outside of Japan. As a prelude to making this decision, Shiomi commissioned an evaluation of the historical impact of the yen’s appreciation on Japanese competitiveness. This evaluation is the basis for two important lessons in international financial management.  First, it is the real exchange rate, rather than the nominal exchange rate, that determines the relative cost competitiveness of countries. Second, in accordance with the rules of purchasing power parity, the historical evaluation showed that higher inflation in the U.S. relative to Japan caused the ratio of Japanese to U.S. prices to fall at roughly the same rate as the yen’s appreciation against the US$. Thus the long-term appreciation in the yen had little impact on Japanese competitiveness. Students are asked to assess the relocation decision in light of the post-case data on exchange rates and consumer prices supplied in the case. The case is appropriate for use in an international financial management or international economics course.

scholarly journals DOES THE BALASSA–SAMUELSON THEORY EXPLAIN THE LINK BETWEEN RELATIVE POPULATION GROWTH AND PURCHASING POWER PARITY?

2013 ◽  
Vol 58 (01) ◽  
pp. 1350007 ◽  
Author(s):  
A. F. M. KAMRUL HASSAN ◽  
RUHUL SALIM
Keyword(s):  
Exchange Rate ◽  
Population Growth ◽  
Purchasing Power Parity ◽  
Panel Cointegration ◽  
Least Square ◽  
Power Parity ◽  
Relative Population ◽  
Relative Prices ◽  
Stable Relationship ◽  
Long Run

Relative population growth affects relative prices through the so-called Balassa–Samuelson (BS) mechanism and that in turn impacts PPP. This paper empirically investigates the relationship between the PPP exchange rate and relative population growth in a panel of 80 selected countries. Following the BS hypothesis, this paper argues that relative population growth affects nominal wages that impact price levels and thereby impacts PPP. Using panel cointegration and fully modified ordinary least square (FMOLS), the empirical results show that there is a stable relationship between PPP exchange rate and relative population growth in the long run. These empirical findings suggest that population growth have an important role in exchange rate determination through PPP.

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