Topic
Choose a country and produce a typed paper about its exchange rates. How have they changed over the past 10 years, and why? You may go further back than 10 years, depending on when interesting events occurred, but not more than 20, and you must go forward all the way to the present from whatever date you choose to start.
Country Choices
1. My goal is for everyone to pick a different country, but I’ll sometimes allow duplicates if a good reason is provided.
2. Your country choice has not been approved until you receive an email from me or Mark saying it has been approved.
3. Do not pick the U.S. dollar, the euro, or any country that has fixed the value of its currency to the value of another country’s currency over the past ten years. If the country tried to fix its exchange rate but had to devalue or revalue it during the last ten years, then that event might be worthwhile writing about.
Checklist for Paper. Your paper should include the following:
1. Four or five pages of double-spaced text (not including title page, tables, figures, and references). You are free to write a little more, but five pages should be adequate in most cases if you stick to the topic—explaining the important movements in exchange rates – and do not fill up the paper with irrelevant material, or repetition of the same material. Pages should be numbered, except for the title page.
2. A list of references at the end of the paper. Guidelines for references will be posted on Angel. They should be sufficiently complete to enable me to easily obtain the reference myself. For example, listing only www.IMF.org is useless, because it does not identify the document or webpage that you are using.
3. Complete citations for the sources of your ideas, data, and any figures or tables taken from other sources. Guidelines on how to cite will be posted on Angel. You can do this in one of two ways: Footnote the relevant passage, with the footnote identifying the reference in your reference list at the end of the paper [e.g., “Wilson (2005, p. 25)”], or include the reference in parentheses after the relevant sentence in your paper [e.g., “(Wilson, 2005, p. 25).”]. Footnotes are useful if you want to explain how you are using the reference [e.g., “Wilson (2005, p. 25) provided the brilliant insight that…,” or “The interest rate data for 1995-2000 is from Wilson (2005, p. 25)”]. If you are citing ideas or data from a particular page in your source, provide the page number. Finally, the period ending a sentence should go after any cite in parentheses, not before [e.g., write “Wilson (2005, p. 25).”; do not write, “. (Wilson 2005, p. 25)”].
4. Quotation marks for passages from articles or websites that you are directly quoting. But avoid quoting long passages, since that may be viewed as a signal that you do not understand the quoted material enough to write it in your own words. Your use of articles or books is meant mainly to get the “facts” and possibly some guidance on what events or government policies were most important in influencing your exchange rates. But ultimately the point of the paper is to conduct your own analysis.
5. Data on exchange rates going back at least ten years, preferably presented as a graph. You are free to choose which particular exchange rates are the most important for your paper, such as the exchange rate between your currency and the dollar or euro. An exchange rate between your currency and a basket of currencies would also be useful (we discussed trade-weighted effective exchange rates in class). Optional but potentially important for your paper: data on real exchange rates (recall that E = q(P/P*)).
6. A clear definition of your exchange rate(s). It is very important to clearly indicate whether, for example, you are talking the amount of your currency needed to buy a dollar, or the amount of dollars needed to buy a unit of your currency. Without knowing this, I cannot give you credit for the paper.
7. A description of any particular exchange rate regime that exists for your country. In other words, is your country fixing its currency to another country’s currency or a basket of currencies, or is your country tightly controlling movements in its currency, through a “managed float.” If the government seems to have tried to “manage exchange rates,” are there some details about how it has done it? For example, we will talk about “sterilized intervention” later in the course.
8. A description of significant events and government policies that have affected your exchange rate(s). If you cannot identify any big events, then you should instead look for some general trends in the world economy that have altered your exchange rate(s) over time (for example, changes in the prices of natural resources). For government policies, distinguish between monetary and fiscal policies. Note that if you are considering the exchange rate between your country’s currency and another country’s currency, then events and government policies in both countries are potentially relevant.
9. Use of models from this course, including the name(s) of the model(s) that you are using, to explain the effects on exchange rates of the events and government policies that you have identified. You need to decide whether to use a short-run model or a long-run model to explain the reaction of your exchange rates to a particular event. Obviously, the short-run model is likely to be more relevant for analyzing the immediate reaction. But we have seen that the long-run model explains large shifts in exchange rates that occur over several years (Example: The appreciation of the yen against the dollar, or the long-run effects of inflation on exchange rates.)
Some Data Sources
Here are some useful websites for your papers.
1. Exchange rate data: http://fx.sauder.ubc.ca/plot.html
This is the best website I have found for graphing exchange rates. It plots exchange rates between most pairs of countries. You can choose the range of dates, and the frequency (e.g., monthly or weekly data).
2. Effective Exchange Rate Indices (real and nominal): http://www.bis.org/statistics/eer/
3. Inflation Rates: http://www.indexmundi.com/g/
As we know from our long-run model (PPP), inflation rates tell us a lot about how exchange rates move over the long-run, particularly for countries that have experienced periods of high inflation.
The same website gives lots of other economic data, including imports and exports, unemployment rates and GDP.
4. Real interest rates: http://data.worldbank.org/indicator/FR.INR.RINR
This data is for the “real lending rate,” which is different from the bond rates discussed in this course, but these rates should be positively correlated with bond rates with similar maturities. The World Bank website has other useful economic data.
5. U.S. treasury bond yields: http://www.treasury.gov/resource-center/data-chart-center/Pages/index.aspx
This is a good source of historic data and charts on the yield curve for U.S. treasury bonds. I suggest you see whether there is anything similar for any country you are thinking about picking.
6. CIA World Factbook: https://www.cia.gov/library/publications/the-world-factbook/
By clicking on “economy” under the country that you select, you can learn some basic facts that might be useful for understanding the forces moving exchange rates. (Note, however, that your paper should not contain material that is unrelated to exchange rate movements.)
A Note of Plagiarism: Ignorance of what constitutes plagiarism is not a valid excuse for plagiarism. If you have not done so already, you should consult the MSU policies on plagiarism.
