The Excel workbook titled 'nominal_exrate.xlsx' contains the data set on the ac- tual nominal exchange rate...

   
 

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The Excel workbook titled 'nominal_exrate.xlsx' contains the data set on the ac- tual nominal exchange rate between US Dollar and Great Britain Pound (GBP) as well as the price levels in both countries and the real exchange rate between USD and GBP for the period between 1980 and 2020. (a) Calculate the nominal exchange rate between USD and GBP suggested by "mon- etary approach". Create a time series plot including the actual nominal ex- change rate and the exchange rate you calculated using monetary approach by putting year on the horizontal axis and exchange rates on the vertical axis. (b) Now, using the real exchange rate values provided in the excel file, calculate a new series of nominal exchange rate following a "general model of exchange rates". Create a time series plot including the actual nominal exchange rate and the exchange rate you calculated using general model of exchange rates by putting year on the horizontal axis and exchange rates on the vertical axis. (c) What do you observe? Which method do you think do a better job in explaining the variations in actual USD/GBP nominal exchange rates? Explain. year E_usd/g bp P_uk P_us 1980 1.5044 33.67 37.79 1981 1.3101 37.67 41.70 1982 1.1312 40.91 44.25 1983 0.9810 42.80 45.68 1984 0.8651 44.92 47.64 1985 0.8396 47.65 49.33 1986 0.9498 49.28 50.27 1987 1.0612 51.33 52.11 1988 1.1528 53.46 54.23 1989 1.0602 56.54 56.85 1990 1.1546 61.10 59.92 1991 1.1438 65.66 62.46 1992 1.1431 68.67 64.35 1993 0.9718 70.43 66.25 1994 0.9914 71.99 67.98 1995 1.0216 73.93 69.88 1996 1.0100 76.04 71.93 1.0598 77.71 73.61 1997 1998 1.0725 79.13 74.76 1999 1.0466 80.52 76.39 2000 0.9808 81.47 78.97 2001 0.9317 82.72 81.20 2002 0.9724 83.97 82.49 2003 1.0579 85.13 84.36 2004 1.1863. 86.31 86.62 2005 1.1781 88.12 89.56 2006 1.1930 90.28 92.45 2007 1.2956 92.44 95.09 2008 1.2002 95.69 98.74 1.0135 97.57 98.39 2009 2010 1.0000 100.00 100.00 2011 1.0382 103.86 103.16 2012 1.0260 106.53 105.29 2013 1.0123 108.97 106.83 2014 1.0668 110.55 108.57 2015 0.9891 110.96 108.70 2016 0.8772 112.08 110.07 2017 0.8342 114.94 112.41 2018 0.8648 117.58 115.16 2019 2020 0.8263 119.62 117.24 0.8302 120.81 118.69 q_usd/gbp 1.319 1.234 1.064 0.933 0.841 0.828 0.917 1.018 1.109 1.056 1.130 1.185 1.181 1.037 1.043 1.033 1.026 1.133 1.107 1.117 1.092 1.008 1.018 1.042 1.137 1.132 1.148 1.223 1.113 0.958 1.000 1.051 1.062 1.046 1.096 1.035 0.895 0.851 0.875 0.847 0.837 E_usd/gbp-> actual nominal exchange rate between US dollar and Great Britain pound P_uk -> United Kingdom price level P_us-> US price level q_usd/gbp -> real exchange rate between US dollar and Great Britain pound The Excel workbook titled 'nominal_exrate.xlsx' contains the data set on the ac- tual nominal exchange rate between US Dollar and Great Britain Pound (GBP) as well as the price levels in both countries and the real exchange rate between USD and GBP for the period between 1980 and 2020. (a) Calculate the nominal exchange rate between USD and GBP suggested by "mon- etary approach". Create a time series plot including the actual nominal ex- change rate and the exchange rate you calculated using monetary approach by putting year on the horizontal axis and exchange rates on the vertical axis. (b) Now, using the real exchange rate values provided in the excel file, calculate a new series of nominal exchange rate following a "general model of exchange rates". Create a time series plot including the actual nominal exchange rate and the exchange rate you calculated using general model of exchange rates by putting year on the horizontal axis and exchange rates on the vertical axis. (c) What do you observe? Which method do you think do a better job in explaining the variations in actual USD/GBP nominal exchange rates? Explain. year E_usd/g bp P_uk P_us 1980 1.5044 33.67 37.79 1981 1.3101 37.67 41.70 1982 1.1312 40.91 44.25 1983 0.9810 42.80 45.68 1984 0.8651 44.92 47.64 1985 0.8396 47.65 49.33 1986 0.9498 49.28 50.27 1987 1.0612 51.33 52.11 1988 1.1528 53.46 54.23 1989 1.0602 56.54 56.85 1990 1.1546 61.10 59.92 1991 1.1438 65.66 62.46 1992 1.1431 68.67 64.35 1993 0.9718 70.43 66.25 1994 0.9914 71.99 67.98 1995 1.0216 73.93 69.88 1996 1.0100 76.04 71.93 1.0598 77.71 73.61 1997 1998 1.0725 79.13 74.76 1999 1.0466 80.52 76.39 2000 0.9808 81.47 78.97 2001 0.9317 82.72 81.20 2002 0.9724 83.97 82.49 2003 1.0579 85.13 84.36 2004 1.1863. 86.31 86.62 2005 1.1781 88.12 89.56 2006 1.1930 90.28 92.45 2007 1.2956 92.44 95.09 2008 1.2002 95.69 98.74 1.0135 97.57 98.39 2009 2010 1.0000 100.00 100.00 2011 1.0382 103.86 103.16 2012 1.0260 106.53 105.29 2013 1.0123 108.97 106.83 2014 1.0668 110.55 108.57 2015 0.9891 110.96 108.70 2016 0.8772 112.08 110.07 2017 0.8342 114.94 112.41 2018 0.8648 117.58 115.16 2019 2020 0.8263 119.62 117.24 0.8302 120.81 118.69 q_usd/gbp 1.319 1.234 1.064 0.933 0.841 0.828 0.917 1.018 1.109 1.056 1.130 1.185 1.181 1.037 1.043 1.033 1.026 1.133 1.107 1.117 1.092 1.008 1.018 1.042 1.137 1.132 1.148 1.223 1.113 0.958 1.000 1.051 1.062 1.046 1.096 1.035 0.895 0.851 0.875 0.847 0.837 E_usd/gbp-> actual nominal exchange rate between US dollar and Great Britain pound P_uk -> United Kingdom price level P_us-> US price level q_usd/gbp -> real exchange rate between US dollar and Great Britain pound

Answer rating: 100% (QA)

a To calculate the nominal exchange rate between USD and GBP suggested by the monetary approachwe can use the following equation Eusdgbp Musd Puk Mgbp Pus where Eusdgbp is the nominal exchange rate be... View the full answer