Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Chapter 16 (5)
Price Levels and the Exchange Rate
in the Long Run
◼ Chapter Organization
The Law of One Price
Purchasing Power Parity
The Relationship between PPP and the Law of One Price
Absolute PPP and Relative PPP
A Long-Run Exchange Rate Model Based on PPP
The Fundamental Equation of the Monetary Approach
Ongoing Inflation, Interest Parity, and PPP
The Fisher Effect
Empirical Evidence on PPP and the Law of One Price
Explaining the Problems with PPP
Trade Barriers and Nontradables
Departures from Free Competition
Differences in Consumption Patterns and Price Level Measurement
Box: Some Meaty Evidence on the Law of One Price
PPP in the Short Run and in the Long Run
Case Study: Why Price Levels Are Lower in Poorer Countries
Beyond Purchasing Power Parity: A General Model of Long-Run Exchange Rates
The Real Exchange Rate
Demand, Supply, and the Long-Run Real Exchange Rate
Box: Sticky Prices and the Law of One Price: Evidence from Scandinavian Duty-Free Shops
Nominal and Real Exchange Rates in Long-Run Equilibrium
International Interest Rate Differences and the Real Exchange Rate
Real Interest Parity
Summary
APPENDIX TO CHAPTER 16 (5): The Fisher Effect, the Interest Rate, and the Exchange Rate under the
Flexible-Price Monetary Approach
