The purchasing power parity and exchange-rate
The value of a country’s currency is often considered as the most important price in the economy. Exchange-rate changes can significantly affect the profitability of exporters, the prices paid by consumers, as well as complicating the comparison of the economies of different countries. In line with this expectation, you are required to examine how the evolving of price different of two country (for example, US and EUR or any other pairs) affects the value of currency.
(1) Exchange rates (bilateral exchange rate of Canadian dollar and US dollar)
(2) Domestic price index (Consumer Price Index of Canada)
(3) Foreign price index (Consumer Price Index of US)
You expected to collect these data for period from 2000 through 2022.
Do correlation Analysis
parity conditions can be tested by running the simple linear regression:
st = b0 + b1 (pt – pt*) + ut
Pt is the cpi for domestic market
Pt * CPI for foreign markets
Parity holds when the data cannot reject a null hypothesis where b0 = 0, b1 = 1, and the error terms have classical properties.
Introduction: background about the ppp and exchange and their relationship
Literature Review (review at least 5-6 articles written
Data description and methods of analysis
Findings and Discussions