Is the PPP a theory of the exchange rate determination in the long run based on the CPI?

Business

Calculate the rate of growth of the exchange rates between two currencies using exchange rate data on your selected countries. Before doing so, answer the following question.

What is the rate of growth and which formula is used to calculate it?

Display the rates of growth of the exchange rates between the two currencies of your selected countries in Excel or SPSS or Tableau chart/graph over the period 1999-2020.

Task Two

Calculate the inflation rates in each of your two selected countries using the Consumer Price Index (CPI) from the 2020 WDI data. Remember the inflation rate is the rate of growth of the CPI.

Display the inflation rates of your selected countries in Excel or SPSS or Tableau chart/graph over the period 1999-2020. Then answer the following question.

Which of your two selected countries has the higher rate of inflation based on the CPI?

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Task Three

Calculate the inflation rates in each of your two selected countries using the GDP Deflator from the 2020 WDI data. Remember the inflation rate is the rate of growth of the GDP Deflator.

Display the inflation rates of your selected countries in Excel or SPSS or Tableau chart/graph over the period 1999-2020. Then answer the following question.

Which of your two selected countries has the higher rate of inflation based on the GDP Deflator?

Task Four

Calculate the difference between your two selected countries CPI based inflation rate. This difference is the predicted rates of growth of the exchange rate over the period 1999-2020.

Also, calculate the difference between your two selected countries GDP Deflator based inflation rate. These differentials are also known as the predicted rates of growth of the exchange rate over the period 1999-2020.

Display the predicted rates of growth of the exchange rate of currencies of your selected countries (from both the CPI and the GDP Deflator) in Excel or SPSS or Tableau chart/graph over the period 1999-2020. Then answer the following question.

Are there any substantial differences in the predicted rates of growth of the exchange rates of currencies of your selected countries over 1999-2020 from the two indicators (CPI and GDP Deflator)?

Task Five

Display the actual and predicted rates of growth of the exchange rate of currencies of your selected countries (calculated in Task One and in Task Four) in Excel or SPSS or Tableau chart/graph over the period 1999-2020. Then answer the following question.

Is the PPP a theory of the exchange rate determination in the long run based on the CPI? (Hints: You should compare the actual rates of growth of the exchange rates of currencies of your selected countries to the predicted rates of growth of the exchange rates of currencies of your selected countries based on the CPI).

Is the PPP a theory of the exchange rate determination in the long run based on the GDP Deflator? (Hints: You should compare the actual rates of growth of the exchange rates of currencies of your selected countries to the predicted rates of growth of the exchange rates of currencies of your selected countries based on the GDP Deflator)

Task Six

Using your answers to the questions and your visuals draft a full report describing all the results obtained from Task One to Task Five. What were the challenges in completing this project and how did you overcome them?