final project 192
you will need to write a research essay to answer two questions: 1. do PPP and IFE hold? 2. If PPP dose not hold in practice, why? If IFE does not hold, why?
Therefore, the entire final project for everyone (finish individually) will include 2 parts. 1st part: collecting data, data management and visualization; 2nd part: writing essay for the topic.
Specifically, I want you to pick two countries, ideally I would prefer a geologically distant country pair, collect their monthly or weekly data for inflation, interest rates, and exchange rates between these two countries, apply the full equation of PPP, IEF to calculate the expected percentage change of the spot rate, and then compare it with the realized Spot rate. If it holds, the two lines you draw and put together will be similar or overlapping to each other.
After your calculation, please write down an essay in detail to talk about what is your conclusion, and why. Please make sure the analysis part of the project addresses the issue as: does PPP and IFE holds according to the project, what is the relationship of PPP and IFE, and explain some possible reasons for why they do not holds. Moreover, I would not mind if you can describe the data a little bit, such as the trend of the exchanges rate, inflation, and interest rate.
Check one thing in the requirements:
Please calculate the expected spot rate by using the percentage change of spot rate you acquired from PPP and IFE equations. And then the expected spot rate could be compared with the realization of the spot rate (exchange rate data you can collect).
The project need at least 100 observations, while it is easy to find daily exchange rate data, it is not easy to find daily inflation or interest rate data. Therefore, I suggest that monthly data would be ideal.
Below are some sources that you can find the data you need:
- For monthly exchange rate: https://www.ofx.com/en-us/forex-news/historical-exchange-rates/monthly-average-rates/
View over 20 years of historical exchange rate data, including yearly and monthly average rates in various currencies.
Daily data on exchange rates against the US dollar have been updated. This covers 81 economies with the earliest data starting in 1949.
2. For the monthly interest rate and inflation rate: most OECD countries please see
Find, compare and share the latest OECD data: charts, maps, tables and related publications
Consumer prices – Bank for International Settlements
Monthly and annual data have been updated for 60 countries. The average length of the monthly series is more than to 55 years. Some annual series go back to the middle of the 19th century – or even earlier for several countries.
Central bank policy rates – Bank for International Settlements
Daily data on monetary policy rates have been updated. This covers 38 central banks with the earliest data starting in 1946.
It is also a good idea to use the Bloomberg terminal in the school if you have the access. Please contribute to the peers if you have other credible resources that we can take advantage of. Thanks you very much.