What are the implications of a change

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Reference no: EM132361255

Consider the following data:

Date Exchange rate

January 2017 EURUSD 1.100

December 2017 EURUSD 1.144

Take the US dollar as the home currency

a. According to Purchasing Power Parity which currency area should have had the higher rate of inflation in 2017 and by how much?

b. What are the implications of a change in the real exchange rate of a currency?

c. Explain why you would expect interest rates in the US to be higher than in the euro area.

d. Explain why you would expect there to be no difference in the interest rates of government bonds of any two countries in the euro area and also explain why in practice there are differences?

Reference no: EM132361255

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