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Category > Economics Posted 09 Jun 2017 My Price 5.00

The relationship between nominal exchange rate and relative prices


The relationship between nominal exchange rate and relative prices. From the annual observations from 1980 to 1994, the following regression results were obtained, where Y = exchange rate of the German mark to the U.S. dollar (GM/$) and X = ratio of the U.S. consumer price index to the German consumer price index; that is, X represents the relative prices in the two countries:

 

a. Interpret this regression. How would you interpret r2?

b. Does the negative value of Xt make economic sense? What is the underlying economic theory?

c. Suppose we were to redefine X as the ratio of German CPI to the U.S. CPI. Would that change the sign of X? And why?

 

 

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Alpha Geek
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Status NEW Posted 09 Jun 2017 07:06 AM My Price 5.00

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file 1496995005-1903554_1_636325305397446344_1903554.docx preview (204 words )
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