1. Explain to a businessman the different types of costs of production and what they mean in business.
2. Describe the four main market structures, reasons why they exist and give examples of business that adopt each of the structures with reasons.
3. Give examples of and ways of dealing with:
i) Market failure
ii) Positive and negative externalities,
iii) Public goods
iv) Common resources.
First, we need an introduction section about the topic to layout the foundation.
Then, write a section that discusses whether or not coronavirus will cause a global economic recession. If so, then compare it to previous global recessions and provide evidence.
After that, Discuss government plans to provide stimulus packages in countries of the developed world on one hand and countries of the developing world on the other.
Next, we need a section that discusses the unemployment rate changes in major economic countries, such as the USA, EU countries, Russia and China.
Then, write a section that talks about how the poverty rate. Will it rise or fall after the virus’s outbreak and the effect of such an event. It would be great if you can compare nowadays situation with previous world pandemics.
Add a section that discusses the possible global economic future and predictions of where stock markets of major economic powers are headed.
Add a well-written conclusion.
We need two graphs or diagrams. One should support the mentioned points about the unemployment rate. The other should support the points made about the future of global stock markets. Be critically unbiased when discussing these topics because we need a worldwide view on this matter.
In writing your responses to your chosen topics, please be as detailed and original in supporting your points as possible. Illustrate with examples and graphs when appropriate.
Choose four (and only four) of the following eight topics. Allocate 1 – 1.25 page per topic, exclusive of the question, inclusive of diagrams if applicable.
Find the detailed study guide for the exam attached. Please don’t hesitate to contact me if you have any concerns.
1. Covered interest differentials and covered interest parity. What motivates covered (as opposed to uncovered) borrowing and investing strategy in international finance? Show how market forces tend to cause the covered interest differential to converge to zero, and what can prevent absolute convergence to zero?
2. How has the Corona virus affected emerging market economies, in terms of their output, attractiveness for foreign investment, and exchange rates against the US dollar? What is the strongest economic argument for making loans and aid available to these countries during the crisis?
3. What are the advantages for an emerging market to be a foreign direct investment host country? In your answer, address the incentives for good economic governance, advantages over other forms of capital flows, trade, domestic savings and investment, and economic growth. Describe any potential negative effects of FDI.
4. Some U.S. opponents to trade claim that a trade deficit automatically leads to an overall increase in unemployment. Using your knowledge of the balance of payments, trace through the financial effects of an increase in imports on the U.S. economy. To what extent will the U.S. be able to run a trade deficit without increasing unemployment? Do all countries have this ability?
5. Suppose there is an increase in national income (Y). Illustrate how the increase in Y will affect the home economy in the income adjustment, and in the monetary approach, to the BoP. Use graphs and/or numerical examples to illustrate. How do the conclusions of the two theoretical approaches differ?
6. Based on the article by Stefan Zweig on the German hyperinflation, describe how this event affected prices, the nature of economic exchange, income distribution, and lifestyle at the time. What role did foreign exchange play in the German hyperinflation? What economic policy was required to end the crisis?
7. Show how price elasticities of import and export demand affect the ability of a home country to improve its BoP with a devaluation. Illustrate you answer with a graph of a typical home export good and how the devaluation affects foreign exchange revenues earned. What does this graph imply about the J-curve?
8. Euro Crisis. Show how the introduction of the Euro contributed to the financial crisis in Greece. What role did the absence of economic “shock absorbers” play in the crisis? Despite the crisis, why did most Greeks favor the continued use of the Euro, instead of their legacy currency, the Drachma? What must happen to improve the functioning of the Euro system?
Collection and analysis of secondary data.
Imagine that you have chosen to do a research project based on secondary data and materials using the briefing paper, ‘Measuring progress and human development’.
You would like to make use of this report as a key source for your project.
Read the briefing paper and then do the following:
DATA EXERCISE #2
Due at the End of Week 5
Format of the Project:
The Data Exercise must be posted to the LEO Student Assignments as a Attachments are limited to a maximum two files in doc, docx., xls. xlsx., or rtf. formats. OTHER FORMATS ARE NOT ACCEPTABLE, will not be reviewed or graded.
Please note that hand-written and scanned works, pdf. files, jpg. files, as well as files posted in google drive, will not be accepted or graded.
The paper should be written in APA style Research Paper format.
No more than 20% of the text of the project should be made up of quotes.
Please note that Use of APA Citation Methodology is required for all parts of the assignment
Written projects must be:
DATA EXERCISE #2
Consists of three parts
Part 1: The Unemployment Rate (weight 30% of the assignment grade)
Complete the following exercise
Visit the Bureau of Labor Statistics Web Site, www.bls.gov/news.release/empsit.toc.htm (http://www.bls.gov/news.release/empsit.toc.htm). Select Employment Situation Summary.
Please note that using the data from previously published releases and summaries will produce grade zero for this part of the project.
Write a report (1 – 2 pages double spaced) in your own words to answer the questions:
Part 2: The Inflation Rate (weight 30% of the assignment grade)
Complete the following exercise:
Visit the Bureau of Labor Statistics Web Site,
www.bls.gov/news.release/cpi.toc.htm (http://www.bls.gov/news.release/cpi.toc.htm). Select Consumer Price Index Summary.
Please note that using the data from previously published releases and summaries will produce grade zero for this part of the project.
Write a report (1 – 2 pages double spaced) in your own words to answer the questions:
Part 3: Unemployment Data by Labor Force Groups and Duration (40% of the project grade)
Go to https://www.govinfo.gov/app/collection/erp
This is the home page of the Economic Report of the President.
Click on the last available Report, scroll down, and download individual tables as Excel.
Please note that using the data from previous Reports will produce grade zero for this part of the project.
Write a report (1 – 2 pages double-spaced) in your own words about the results you received.
In this paper consider, but do not be limited to the following:
ECON Coursework – Short Answer Questions
Answer the following questions; each question is independent of the other. The responses must reflect critical-thinking and analysis. No introductions and conclusions are required. Responses for each question should be about 150 words.
References: 1-2 sources per question in APA (7th) format
Questions:
1. What evidence can you find in recent news articles regarding strategies used by specific countries to strengthen their existing comparative advantages or to develop new comparative advantages in trade?
2. Relating to comparative advantage, how can governmental regulatory policies affect an industry’s international competitiveness? Provide an example of a Canadian industry.
3. What is the infant-industry argument for tariff protection? Briefly discuss the strengths and limitations of this rationale for tariffs. If new industries require support, what methods other than import tariffs might be used?
4. Relating to nontariff trade barriers, which tends to result in a greater welfare loss for the home economy: (a) an import quota levied by the home government or (b) a voluntary export quota imposed by the foreign government? (Use an example where necessary.)
5. Should countries decrease/increase trade barriers during economic downturns? Draw examples from previous recessions and/or downturns caused pandemics.
6. Research a developing nation, how are import substitution and export promotion policies used to aid in the industrialization of this country?
7. Relating to regional trading agreements, exploratory discussions on a possible Canada-ASEAN (Association of Southeast Asian Nations) free trade agreement were started in 2017. What are the economic benefits this agreement would bring to both sides?
8. For multinational enterprises, what are the pros and cons of technology transfer to the host and source nation. Provide an example.
9. In foreign exchange markets, what is destabilizing speculation, and why does it pose problems for individuals, for firms, and for national governments?
Part A – Microeconomics
Apple’s iPhone 11 Has a New Feature: A Lower Price
By Jack Nicas and Brian X. Chen, September 10, 2019
The iPhone 11, Apple’s entry-level phone, will start at $700, compared with $750 for the comparable model last year.
Tim Cook speaking about the iPhone 11 Pro. CreditCreditJim Wilson/The New York Times
CUPERTINO, Calif. — Apple’s product launches have long been full of surprises, but rarely has a price cut been among them.
On Tuesday, in a sign that Apple is paying attention to consumers who aren’t racing to buy more expensive phones, the company said the iPhone 11, its entry-level phone, would start at $700, compared with $750 for the comparable model last year.
Apple kept the starting prices of its more advanced models, the iPhone 11 Pro and iPhone 11 Pro Max, at $1,000 and $1,100. The company unveiled the new phones at a 90-minute press event at its Silicon Valley campus.
The cost cut on the iPhone 11 was unexpected because Apple had been raising prices each year as a way to keep revenues afloat while iPhone sales fell. But Apple might have hit the ceiling this past year. Sales of the two models that began at $1,000 or more lagged expectations, causing the company to cut revenue estimates and eventually slash prices in China to increase demand.
At the same time, Apple’s entry-level phone last year — the iPhone XR, at $750 — became the company’s best-selling device.
Analysts say that one issue with the rising prices has been that new iPhone features haven’t kept up. As a result, many people are holding onto their phones longer. The falling price suggests Apple sees that trend and is trying to entice more people to upgrade.
Apple said it would also still sell older models for even less. The iPhone 8 now costs $450 and the iPhone XR now costs $600.
Apple has rebranded its iPhone line to make the iPhone 11 its entry-level option, while adding a “Pro” label to its more expensive models.
The move is a departure from Apple’s previous marketing strategy, which gave the cheapest phone a different label that branded it as the discounted model. (It still started at $750.) The iPhone XR became Apple’s best-selling iPhone, while its more expensive models struggled in some markets. Those lagging sales caused Apple to cut revenue estimates earlier this year.
The iPhone XR also likely outperformed its costlier cousins in part because tech reviewers considered it to be about as good as the flagship iPhone — for 25 percent less. Apple has long been in a bind on pricing and developing its line of iPhones, aiming to make the least expensive devices still worth paying hundreds of dollars for without undercutting the pricier models.
The rebranding suggests Apple is embracing the lowest-priced iPhone as the device most people will use, while marketing the “Pro” devices for the higher end of the market. The company has done the same with its iPads, also labeling its most advanced tablets the iPad Pro.
The company introduced three new phones: the iPhone 11, iPhone 11 Pro and the iPhone 11 Pro Max. The main difference? Each of the three iPhones gained a new camera lens.
The new high-end Pro models include a triple-lens main camera, up from two lenses in last year’s models, and the entry-level iPhone now has a dual-lens camera, up from a single lens in last year’s iPhone XR. All the iPhones include a so-called ultrawide angle lens.
Here’s what that means: The new ultrawide lens take photos with a wider field of view than traditional phone cameras, which makes it handy for shooting landscapes or large group gatherings. Samsung’s Galaxy S10, which was released this year, also includes an ultrawide angle lens.
The second lens on the entry-level iPhone will also make the camera more capable of shooting photos in portrait mode, which puts the picture’s main subject in sharp focus while softly blurring the background.
Last year’s iPhone XR had a single lens and was capable of shooting portrait photos of only human subjects. The second lens in the new entry-level iPhone will let you take portrait shots of nonhuman subjects like food, animals and plants.
On the high-end iPhones, the triple-lens system lets users zoom in closer on their subjects. Apple also said it had added a night mode for shooting photos in low light. By default, when users shoot photos in the dark, the camera will automatically make photos look better lit.
With its focus on camera tech, Apple is playing catch-up with Google. Google’s Pixel smartphones focus on camera innovations including Night Sight, a popular feature for shooting photos in low light, which led critics to conclude that the search giant had used its prowess in artificial intelligence to surpass Apple in camera tech.
Stan Ng, Apple’s vice president for product marketing, Apple Watch.CreditJim Wilson/The New York Times
Apple detailed the Apple Watch Series 5. The watch’s most noteworthy new feature is its so-called always-on display. In previous models, the screen would turn on when you tilted your wrist to check the time.
The new watch uses a display technology (previously seen in Samsung phones) to keep some pixels activated just to show the time, consuming little power. The screen becomes fully illuminated when you tilt your wrist. Other updates to the watch, including a built-in compass, were minor. The watch starts at $400, the same price as the last model. It will be available on Sept. 20.
The company introduced a new version of its entry-level iPad, which costs $330. The new model includes a 10.2-inch screen, up from 9.7 inches. Unlike the previous model, the new tablet is compatible with Apple’s Smart Keyboard. (Previous iPads worked only with third-party keyboards.)
The updated iPad is unremarkable compared with Apple’s high-end iPad Pros, which include sharper screens and infrared face recognition and work with a more advanced Apple stylus. However, the entry-level iPad is Apple’s best-selling tablet, and its investment in the entry-level model shows the company’s commitment to the category even though its sales have slowed down.
Tim Cook speaking about “The Morning Show.”CreditJim Wilson/The New York Times
At last, Apple’s original television shows have a premiere date and price point. The company’s chief executive, Tim Cook, announced that Apple would begin rolling out original shows and movies on Nov. 1 for $5 per month.
Apple TV Plus, which will be the home of all of Apple’s original content, will be free for a year to users who buy a company product like a new iPhone or a laptop.
Apple announced that on Nov. 1, it would feature a lineup of adult dramas, comedies, children’s programs and documentaries. Those series include four shows the company has released trailers for, including “The Morning Show,” starring Jennifer Aniston, Reese Witherspoon and Steve Carrell; “Dickinson,” a comedy starring Hailee Steinfeld and Jane Krakowski; “See,” an epic drama starring Jason Momoa; and “For All Mankind,” a space drama. The launch will also feature other programs, including Oprah Winfrey’s new book club, a Peanuts series called “Snoopy in Space” and a documentary that Apple bought the rights to last year called “The Elephant Queen.”
By year’s end, Apple will have six subscription services, from news to TV to music. Customers who wanted all of them would pay up to $55 a month.
The launch date puts Apple in the thick of the so-called streaming wars, which have consumed Hollywood. Disney is rolling out its new streaming service, Disney Plus, on Nov. 12. AT&T’s Warner Media, the home of HBO, Warner Bros. and the DC comic universe, will introduce its own streaming service next year, and will announce new details for it on Oct. 29.
The monthly price makes it cheaper than Disney’s service, which will be $7 a month, and is well below Netflix, which is $13 per month.
But questions linger: How will Apple market these programs in the coming months? Which shows will be introduced from the get-go? And will Apple drop all episodes of new series at once like Netflix does, or will it roll them out once a week?
— John Koblin
Ann Thai, product lead for Apple, onstage at the Steve Jobs Theater at Apple Park in Cupertino, Calif.CreditJim Wilson/The New York Times
Apple announced it was getting into gaming earlier this year. Now we know how much its subscription will cost: $5 a month.
The company said its gaming service, Apple Arcade, would be available starting Sept. 19 in more than 150 countries. The service will give users access to more than 100 games that aren’t available elsewhere. The games can be played on iPhones, iPads, Macs and on Apple TV.
Apple showed off several of the games on Tuesday, including an undersea-exploration game from the Japanese game maker Capcom and an updated version of the arcade classic Frogger.
Apple Arcade is part of a larger strategy by the company to create a steady, more predictable revenue stream from services as sales of iPhones continue to slide. Apple has also added subscription services for news, music and streaming video.
Apple spent hundreds of millions of dollars to fund the development of new games for Apple Arcade, The Financial Times reported in April. Analysts expect gaming could become a major moneymaker for Apple within the next several years. HSBC analysts forecast its revenues to reach $2.7 billion by 2022, outpacing the company’s news and video subscription services.
End of article
Questions: (30 marks)
Part B – Microeconomics
Mobile Roaming Charges
Prior to June 2017, many mobile phone users across Europe faced different prices for accessing the same services when travelling to another country in Europe. For example, a UK phone user may have had a tariff which included unlimited texts and minutes and an allowance on the amount of data used in the UK but when travelling to Spain, would have faced additional charges on data roaming. In some cases, users who were unaware of data roaming charges faced significant bills when returning home for having sent texts, images, downloading data and making calls home. For the service providers, this option allowed them to be able to increase revenues, albeit that many customers clearly did not like the idea.
European Union regulators also didn’t like the idea. It was argued that mobile data roaming charges were an example of market failure, and plans had been put in place to have them abolished. These plans came to fruition in June 2017. A joint press statement from the European Union and the European Commission noted that ‘The end of roaming charges is a true European success story… Over the last 10 years, our institutions have been working hard together to fix the market failure. Each time a European citizen crossed an EU border, be it for holidays, work, studies or just for a day, they had to worry about using mobile phones and a high phone bill from the roaming charges when they came home. Roaming charges will now be a thing of the past. As of tomorrow, [15 June] you will be able to remain connected while travelling in the EU, for the same price as at home.”
End of article
Source: Europa.eu/rapid/press-release_STATEMENT-17-1590_en.htm
Questions (20 marks)
Part C – Macroeconomics (35 marks)
Describe the trends in the graph over time and comment on the recession periods.
Introduction, Conclusion and References (15 marks)
The following are key factors that are taken into account in the assessment of a report:
Why is there a debate about what determines property value? Does land prices determines house prices or does house prices determines land price?
Is it due to direction or causality.. or it could be simultaneous in which one causes another no clear pattern of simultaneous causality.
Will it guide people into the property market and into development and allow them to be more mindful of final house price.
or use market price to bargain for land price.
Who is this research significant to? Is it important to the government who is trying to increase the number of houses built to increase supply.
Argument that there is a huge supply of land available that property developers have access to.. because low house prices hasn’t increased enough to use that land. until house price increases and only then will they build on the land. this is issues of property supply, these issues may explain it better. the government can reduce sales tax on new houses. if government reduces it could make up the premium that property developers are waiting for to build houses.
Extra Credit 2
1. Suppose the government’s national income and product accounts reveal the following information (in millions of dollars). Show work to receive full credit.
Consumption 525 Investment 110 Government spending 72 Exports 50 Imports 65 Employee compensation 462 Interest 59 Rents 29 Profits 142 Depreciation 70 Net foreign factor income 10
a. Using the data in the table, verify that the income approach and the expenditure approach yield the same measure of GDP.
b. Find GNP, NDP and NNP.
2. There are three firms in an economy: X, Y, and Z. Firm X buys $200 worth of goods from firm Y and $300 worth goods from firm Z; and produces 250 units of output at $4 per unit. Firm Y buys $150 worth goods from firm X, and $250 worth goods form firm Z; and produces 300 units of output at $6 per unit. Firm Z buys $75 worth goods from X, and $50 worth goods from firm Y; and produces 500 units at $2 per unit. Given this information, what is the economy’s GDP? Show work to receive full credit.
3. Recent data for the country Krypton reveal the following (all figures in millions). Show work to receive full credit.
Total population 100 Under 16 or institutionalized 20 Employed 50 Unemployed 10
a. The size of the labor force.
b. The size of “not in the labor force.”
c. The unemployment rate.
d. Labor force participation rate
e. Employment-population ratio
4. Suppose the natural rate of unemployment is 4.5% and the current unemployment rate is 6%. Show work to receive full credit.
a. According to Okun’s law, what is the size of the GDP gap?
b. If potential GDP is $1,000 billion, how much output is being lost as a result of the economy being below its potential?
5. Nominal GDPt = quantityt * pricet. Real GDPt = quantityt * pricebase year. Growth rate of Xt = [(Xt-Xt-1)/Xt-1]*100. GDP deflator = (nominal GDPt /real GDPt)*100. Inflation rate = [(Pt-Pt-1)/Pt-1]*100. Show work to receive full credit.
a. Calculate nominal GDP, Real GDP in 2012 and in 2015 dollars:
Year Quantity Price Nominal GDP
Real GDP 2012$
Real GDP 2015$
2012 1000.00 $10
2013 1100.00 $11
2014 1000.00 $13
2015 1200.00 $16
b. Find the growth rates of nominal GDP for 2013, 2014, and 2015.
c. Find the growth rates of real GDP (using 2012$) for 2013, 2014, and 2015.
d. Find the growth rates of real GDP (using 2015$) for 2013, 2014, and 2015.
e. Calculate GDP deflator (using 2012$) and inflation rates for 2013, 2014, and 2015.
f. Calculate GDP deflator (using 2015$) and inflation rates for 2013, 2014, and 2015.
6. Consider the following data for a hypothetical economy. Show work to receive full credit.
Year Real GDP
Population
1 $50,000 200 2 $51,400 202
a. Calculate the growth rate of real GDP over the year.
b. At this rate of growth, approximately how many years will pass before real GDP doubles?
c. Find real GDP per capita in each of the two years. Using these two values, calculate the growth rate of real GDP per capita over the year.
d. At this rate of growth, approximately how many years will pass before real GDP per capita doubles?
7. A hypothetical economy’s consumption schedule is given in the table below. Show work to receive full credit.
GDP=DI C 6600 6680 6800 6840 7000 7000 7200 7160 7400 7320 7600 7480 7800 7640 8000 7800
Use the information to answer the following:
a. If disposable income were $7400, how much would be saved?
b. What is the “break-even” level of disposable income?
c. What is this economy’s marginal propensity to consume?
d. What is the average propensity to consume when disposable income is $7000? When disposable income is $8000?
8. Multiplier effect. Show work to receive full credit.
a. Suppose a $100 increase in desired investment spending ultimately results in a $300 increase in real GDP. What is the size of the multiplier?
b. If the MPS is .4, what is the multiplier?
c. If the MPC is .75, what is the multiplier?
d. Suppose investment spending initially increases by $50 billion in an economy whose MPC is 2/3. By how much will this ultimately change real GDP?
9. The consumption and investment schedules for a private closed economy are given in the following table. Show work to receive full credit.
GDP=DI C I 6600 6680 80 6800 6840 80 7000 7000 80 7200 7160 80 7400 7320 80 7600 7480 80 7800 7640 80 8000 7800 80
Use the values in the table to answer the following:
a. What is the equilibrium level of GDP?
b. What is the level of saving at the equilibrium level of GDP?
c. Suppose actual GDP is $7600. How much unplanned inventory change will occur? What will likely happen to GDP as a result?
10. Suppose a private closed economy has an MPC of .8 and a current equilibrium GDP of $7400 billion. Show work to receive full credit.
a. What is the multiplier in this economy?
b. Now suppose the economy opens up trade with the rest of the world and experiences net exports of $20 billion. What impact will this have on equilibrium real GDP?
c. Next suppose a government is introduced, and plans to spend $100 billion. By how much will this change in spending ultimately cause GDP to change, and in what direction? d. In order to finance this expansion of government spending, suppose the government decides to levy a lump-sum tax of $100 billion. By how much will GDP change, and in what direction?
11. Suppose an economy can be represented by the following table, in which employment is in millions of workers and GDP and AE are expressed in billions of dollars. Show work to receive full credit.
Employment Real GDP
Aggregate Expenditures 100 1200 1275 105 1300 1350 110 1400 1425 115 1500 1500 120 1600 1575 125 1700 1650
Use the table to answer the following:
a. What is the equilibrium level of GDP?
b. What kind of expenditure gap exists if full employment is 120 million workers? What is its size?
c. Suppose government spending, taxes, and net exports are all independent of the level of real GDP. What is the multiplier in this economy?
d. Suppose instead that the economy is producing at equilibrium GDP. If this GDP is $200 billion below the economy’s potential, what is the size of the recessionary expenditure gap?
12. The following table shows the average retail price of butter and the Consumer Price Index (CPI) from 1980 to 2000, scaled so that the CPI = 100 in 1980. Inflation = [(CPI2000/CPI1980) – 1] *100. Real price of butter in year t = (CPIbase year/CPIt) *(nominal price of butter in year t). Percentage change = [(final – beginning) / beginning] *100. Show work to receive full credit.
a. Calculate the inflation from 1980 to 2000.
b. Calculate the real price of butter in 1980 dollars. What is the percentage change in the real price (1980 dollars) from 1980 to 2000? Hint: the base year is 1980.
1980 1985 1990 1995 2000
Real price of butter (1980 $)
c. Calculate the real price of butter in 2000 dollars. What is the percentage change in the real price (2000 dollars) from 1980 to 2000? Hints: the base year is 2000.
1980 1985 1990 1995 2000
Real price of butter (2000 $)
d. Does it matter which year is chosen as the base year when calculating percentage changes in real prices
Applied Econometrics: Do relative prices determine the Malaysian exchange rate?
One of the most fundamental ways of modelling exchange rates is to specify relative prices as the main determinant. Broadly speaking Purchasing Power Parity (PPP) suggests that the exchange rate between two countries is equal to the ratio of their general price levels. This is a core principle of international economic and finance theory and is assumed to hold in, for example, monetary models of exchange rate determination.[1] However, the empirical evidence generally rejects PPP in the short-run while the evidence for PPP holding in the longrun is mixed (Bahmani-Oskooee and Hegerty, 2009). The “PPP puzzle” is that theory suggests that PPP should clearly hold, however, the empirical evidence is less than clear, with many researchers finding evidence that rejects it. This puzzle remains an unresolved issue in the economics literature and continues to warrant investigation. As such, testing for PPP is a relevant theme to be considered by undergraduate economics students in their capstone module.
A range of potential explanations for the many empirical rejections of PPP have been offered.
Some examples include the use of incorrect data in the tests, productivity differentials (the Balassa-Samuelson effect), corruption, natural resource endowments and the inadequacy of the econometric techniques used (Bahmani-Oskooee and Hegerty, 2009). Regarding the latter, time-series econometrics has developed over the past 50 years to account for the typical nonstationarity of macroeconomic data – that is, many macroeconomic data (including the price data used in testing PPP) are trended (integrated). These dynamic econometric methods (sometimes referred to as modern econometrics) focus on testing for integration and cointegration.[2] Essentially, these methods test whether the trends in different data sets are forced together (are cointegrated) or drift apart over the long-run. If macroeconomic variables move together, rather than drift apart, fundamental economic forces (as postulated by economic theory) are attributed as the cause. Hence, integration and cointegration tests can be used to assess whether the exchange rate moves towards the relative prices of the associated countries in the long-run. As such, these dynamic econometric methods have been predominantly used to test whether PPP holds in the long-run. One avenue of research has been whether the rejections of PPP using integration and cointegration methods have been due to deficiencies in the tests used. As such integration and cointegration methods have been refined and developed to account for such deficiencies, such as non-linearities and structural breaks.
An introduction to dynamic econometrics by testing the PPP theory will provide students taking this theme with an insight into some of the fundamental modern econometric methods (and how to apply them) that should be part of any econometrician’s toolkit. As such, all student will learn the core of the theme, being: the PPP economic theory, data collection and analysis as well as dynamic econometric methods and their application. However, each student will (as a sub-theme) apply these methods to a different pair of countries. Given that different countries’ data will have different features that will likely raise different issues, each student’s analysis be distinct. The sub-themes are distinguished by the countries used, as indicated below.
– see chapter 15 of Brooks (2019) for a guide on doing an empirical dissertation.
As data are most readily available for the USA, it is mandatory that this is the base country. The other country in the analysis is Malaysia.
Student’s essay title will be:
Do relative prices determine the MALAYSIAN exchange rate?
A basic structure of the empirical 5000-word essay for the applied econometrics theme should be:
A short (no more than a maximum of 200 word) summary of what you have done and what your findings are.
State what you will do and why is it interesting – what question do you answer? Motivate your work. What is novel about your work (new country and/or more recent data)?
Theoretical review (~1500 words) and empirical literature review (including recent literature from the last 10 or so years) (~1500 words). (~3000 words in total)
Discuss the theoretical models and/or econometric methods. Only use the Augmented Dickey-Fuller (ADF) test AND Cointegration (Engle – Granger) test.
Summarize what you have done and state the conclusions of your work, possibly comparing and contrasting this with the previous literature.
Provide a full list of references of at least 15 papers cited in the text of your dissertation. Follow the Harvard referencing style.
[1] For example, the flexible-price version of the monetary model of exchange rate determination assumes that PPP holds continuously (in the short-run and the long-run) whereas the sticky-price version of the monetary model of exchange rate determination only assumes that PPP holds in the long-run (and not the short-run). See, for example, MacDonald, R. and Taylor, M. P. (1992) “Exchange Rate Economics A Survey” IMF Staff Papers, 39(1), pp. 1 – 57.
[2] Clive Granger and Robert Engle won the Nobel prize in 2003 for their work on cointegration. See, Engle, R. F. and Granger, C. W. J. (1987) “Cointegration and error correction: representation, estimation and testing” Econometrica, 55, pp. 251 – 276.
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