INTL 2200 Lecture 13: intl2200-class-13-ch14
25 Mar 2016
School
Department
Course
Professor
Document Summary
E uncovered interest parity covered interest parity risk aversion. Only way it holds true is if f = ee. Only the second one is supported by empirical evidence though. Asset approach to exchange rates; uncovered parity theory. => e = (r r +1): r increases -> e decreases. Creates inflow of capital -> demand for c$ increases -> e decreases (c$ appreciates: r* decreases -> e decreases. Monetary policy is the main tool on how we alter interest rate. In scenario 1, we initiate contractionary monetary policy (raising rate of interest will make borrowing more expensive, reducing economic activities) Since we are in short-run, assume prices to be constant (or rigid) Nominal interest rate = real interest rate + expected inflation: If ee increases -> e increases get graphs there"s three (from oks or. Today"s depreciation of c$ - > gives rise to tomorrow"s expected appreciation of.
