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Chapter 8 Relationships among Inflation, Interest Rates, and Exchange Rates

Published on Nov 20, 2015

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PRESENTATION OUTLINE

Chapter 8
Relationships among Inflation, Interest Rates, and Exchange Rates

Overview
1. Explain PPP, IFE and their implications on exchange rates
2.Compare the PPP, IFE and IRP theories

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Purchasing Power Parity (PPP)



When a country’s inflation rate rises relative to that of another country, decreased exports and increased imports depress the high-inflation country’s currency.



Purchasing power parity (PPP) theory attempts to quantify this inflation – exchange rate relationship.