60.1K

Verified Solution

Link Copied!

QUESTION 2,3,4

Relationship predicted by PPP 00 Rate of +40% depreciation 1975-2005 (% per year +30 versus U.S. $) +20 +10 +0 -10 -10 +0 +10 +20 +30 +40% Inflation differential 1975-2005 (% per year versus U.S.) Figure 1: Inflation Differentials and the Exchange Rate, 19752005 2. What is the theory that you are trying to test with this figure? What is the mathematical rela- tionship between the variables (indicators of financial economics) predicted by this theory? What are the most important assumptions we make in this theory? 3. What is the source(s) of the dataset(s) you are using? What is the definition of each variables (i.e. indicators of financial economics) that you are downloading? Explain your reasons of choosing these variables. If you have a few of similar measurements/indicators to choose from, indicate which ones you choose and explain why. 4. You have to construct your own measurements/variables from the available data if you can- not download ready-to-use ones. How did you construct each variable if you have used self- constructed variables? Write out the mathematical expression for the construction/definition of each self-constructed variable. Use subscript i to denote countries other than the United States. Use US to denote the United States and t to denote time. Relationship predicted by PPP 00 Rate of +40% depreciation 1975-2005 (% per year +30 versus U.S. $) +20 +10 +0 -10 -10 +0 +10 +20 +30 +40% Inflation differential 1975-2005 (% per year versus U.S.) Figure 1: Inflation Differentials and the Exchange Rate, 19752005 2. What is the theory that you are trying to test with this figure? What is the mathematical rela- tionship between the variables (indicators of financial economics) predicted by this theory? What are the most important assumptions we make in this theory? 3. What is the source(s) of the dataset(s) you are using? What is the definition of each variables (i.e. indicators of financial economics) that you are downloading? Explain your reasons of choosing these variables. If you have a few of similar measurements/indicators to choose from, indicate which ones you choose and explain why. 4. You have to construct your own measurements/variables from the available data if you can- not download ready-to-use ones. How did you construct each variable if you have used self- constructed variables? Write out the mathematical expression for the construction/definition of each self-constructed variable. Use subscript i to denote countries other than the United States. Use US to denote the United States and t to denote time

Answer & Explanation Solved by verified expert

See Answer