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英国留学生经济学作业写作需求:What are the sho

What are the short and long-term determinants of exchange rates?

Area and context of research
For many years, the fluctuation of exchange rate has always been an interesting topic for manyresearchers. Most economists think that the volatility of exchange rates are driven 英国论文网bymacroeconomicphenomena (Rose, 1994). However, since the 1980s, many researchers have thrown doubt on theexplanation of exchange rate using macroeconomic model. Flood and Rose (1995) said that theexchange rate ‘appears to have a life of its own’. This Research Proposal also seeks to find outwhether exchange rates do have a random walk and attempts to explore its determinants in both theshort run and long run. In particular, it looks at the relationship between exchange rate volatility andmacroeconomic fundamentals as well as other factors such as rational expectations, economic
openness, consumer confidence, political events and asset market variables. Understanding the impactof the determinants of exchange rate would help to promote currency stability and greater certainty forinternational trade, which in turn, enable policy makers to pursue greater economic stability. Thisresearch will focus on three currencies: UK Pound, US Dollar and the Euro.
Key literature
Edison, H. J. (1987) Purchasing Power Parity in the Long Run: A Test of the Dollar/Pound ExchangeRate 1890-1978. Journal of Money, Credit and Banking, vol.19, no.3, August, pp.376-387
· This literature provides an in-depth explanation about the relationship between purchasing powerparity (PPP) and the movement of exchange rates in the long run. The economic theory of PPP isthat equilibrium exchange rate between two nations is determined by the ratio of domestic andforeign prices. The model was based on the data of the Dollar/Pound exchange rate from 1890-1978. By testing http://ukthesiss.com/thesis_sample/gongshangguanlizuoyexuqiu/the impact of PPP over this long period of time, it is possible to makeconclusions about the long run trend of the economy. The main findings of this literature supportthe theory that the relationship between exchange rates and relative price level would becomeclearer in the long run (with changes in structural factors taken into account)
· Together, these findings implied that PPP is one of the main determinants of exchange rate thatshould be included in the RHS of the regression model.
Chiang, T. C. (1985) The Impact of Unexpected Macro-Disturbance on Exchange Rate in MonetaryModel. Quarterly Review of Economics and Business, vol.25, no.2, Summer, pp.49-59
· This literature provides a closer look at the relationship between expectations and the behaviour
of exchange rates, which will help to fulfil the gaps of this research project. It is suggested that thekey determinants of the movements of exchange rates were: future expectation of exchange ratesand the basic determinants that consist of relative money supply, relative real incomes andrelative interest rates. Therefore, rational expectation plays an important role in determining thebehaviour of exchange rates.



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