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ECO365H International Monetary Economics 2015 Writing Assignment
The purpose of this assignment is to test the relative and absolute PPP Theorem for the country of your choice and write a well-structured research report about the whole process of acquiring and refining your date, applying the theory and estimation, and interpreting the results. In order to help you, your paper should include, among other things, following steps. Please note that your final paper must have a complete structure from introduction to conclusion and references with an internal coherence. These steps are just to help you to organize your paper, and not to be treated like questions to get your answer mechanically.
Part 1)- Testing the Absolute Purchasing Power Parity theorem:
1)- Choose a period of time not shorter than 25 years and as recent as possible. For each year, find following time series data for your country from reputable sources (World Bank, IMF, or UN): CPI and GDP deflator data for the US and your country, also the nominal exchange rate in terms of the US$. Make sure all indexes base year is the first year of your dataset. Also normalize you exchange rate observation such that the exchange rate for the first year of your dataset is 100.
Present the data in form of tables and graphs that you think are informative for your audience. Discuss the sources of your data, nature of the data and the assumptions and calculations that you may use to construct the needed data. (10 points)
2)- Calculate Absolute Purchasing Power Parity exchange rate,EPPP , for each year, using both CPI and GDP deflator to see which one works better. Also calculate the misalignments too. Explain your
calculations. (15 points)
3)- Compare and discuss the results in part (2), theoretically and also empirically for your country.
Show your results in form of tables and graphs that you think are informative. (15 points) Part 2)- Testing the Relative Purchasing Power Parity theorem:
4)- Using your variables in part (1), calculate the domestic and foreign inflation rates (for both GDP deflator and CPI index) and nominal depreciation rate. Run a regression between nominal depreciation rate as the dependent variable and the inflation differential as the independent variable. Force the regression to set the intercept equal zero. All estimated coefficients and statistics should be fully presented. The computer output of the estimation should be included. (25 points)
If you need a software to do the regression, you can use LINEST function in MS Excel to do the estimation. Please search YOUTUBE, for tutorials to use LINEST. You can learn it within a few minutes.
5)- – Discuss the size and sign of the coefficients. Discussing the statistics of the model (t or standard error, F, and R2). Using the result of regression, discuss how well the relative PPP theorem is working for your country. Present the results in form of graphs that you think are informative.
(15 points) 6)- General organization, quality of presentation, creativity and elaboration of the paper and also
Part 3)- General:
proper referencing:
(20 points)
ECO365H International Monetary Economics 2015 Writing Assignment
The purpose of this assignment is to test the relative and absolute PPP Theorem for the country of your choice and write a well-structured research report about the whole process of acquiring and refining your date, applying the theory and estimation, and interpreting the results. In order to help you, your paper should include, among other things, following steps. Please note that your final paper must have a complete structure from introduction to conclusion and references with an internal coherence. These steps are just to help you to organize your paper, and not to be treated like questions to get your answer mechanically.
Part 1)- Testing the Absolute Purchasing Power Parity theorem:
1)- Choose a period of time not shorter than 25 years and as recent as possible. For each year, find following time series data for your country from reputable sources (World Bank, IMF, or UN): CPI and GDP deflator data for the US and your country, also the nominal exchange rate in terms of the US$. Make sure all indexes base year is the first year of your dataset. Also normalize you exchange rate observation such that the exchange rate for the first year of your dataset is 100.
Present the data in form of tables and graphs that you think are informative for your audience. Discuss the sources of your data, nature of the data and the assumptions and calculations that you may use to construct the needed data. (10 points)
2)- Calculate Absolute Purchasing Power Parity exchange rate,EPPP , for each year, using both CPI and GDP deflator to see which one works better. Also calculate the misalignments too. Explain your
calculations. (15 points)
3)- Compare and discuss the results in part (2), theoretically and also empirically for your country.
Show your results in form of tables and graphs that you think are informative. (15 points) Part 2)- Testing the Relative Purchasing Power Parity theorem:
4)- Using your variables in part (1), calculate the domestic and foreign inflation rates (for both GDP deflator and CPI index) and nominal depreciation rate. Run a regression between nominal depreciation rate as the dependent variable and the inflation differential as the independent variable. Force the regression to set the intercept equal zero. All estimated coefficients and statistics should be fully presented. The computer output of the estimation should be included. (25 points)
If you need a software to do the regression, you can use LINEST function in MS Excel to do the estimation. Please search YOUTUBE, for tutorials to use LINEST. You can learn it within a few minutes.
5)- – Discuss the size and sign of the coefficients. Discussing the statistics of the model (t or standard error, F, and R2). Using the result of regression, discuss how well the relative PPP theorem is working for your country. Present the results in form of graphs that you think are informative.
(15 points) 6)- General organization, quality of presentation, creativity and
