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

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.

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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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?

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)?