HOMEWORK 9 The International Fisher Effect (IFE) by Patricio Garza https://padlet.com/patricioagv00/oqstd5ki0tc2ezoy en-us 2023-03-18 00:24:11 UTC 2023-03-18 00:39:00 UTC hello@padlet.com Home and foreign inflation and interest rate are similar. patricioagv00 https://padlet.com/patricioagv00/oqstd5ki0tc2ezoy/wish/2521427223 The IFE suggests that there should be no significant long-term impact on the exchange rate between the two currencies. Without any significant movement in the exchange rate, there would be no major changes in the relative prices of imports and exports. As a result, we can expect that there would be no significant impact on the levels of imports and exports.]]> 2023-03-18 00:27:44 UTC https://padlet.com/patricioagv00/oqstd5ki0tc2ezoy/wish/2521427223 Home inflation and interest rate are lower compared to the foreign country. patricioagv00 https://padlet.com/patricioagv00/oqstd5ki0tc2ezoy/wish/2521427526 If the home inflation rate and interest rate are lower than those of the foreign country, the domestic currency should appreciate in the long run relative to the foreign currency. In this scenario, a stronger domestic currency would make imports cheaper, as it would take less domestic currency to buy the same amount of foreign currency needed to purchase goods from abroad. On the other hand, exports would become more expensive for foreign buyers, as they would have to pay more of their own currency to buy the same amount of domestic goods.



]]> 2023-03-18 00:28:39 UTC https://padlet.com/patricioagv00/oqstd5ki0tc2ezoy/wish/2521427526 Home inflation and interest rate are higher compared to the foreign country. patricioagv00 https://padlet.com/patricioagv00/oqstd5ki0tc2ezoy/wish/2521427716 A country with a higher inflation rate should expect its currency to depreciate in the long run relative to the country with a lower inflation rate. This would make imports more expensive, as it would take more domestic currency to buy the same amount of foreign currency needed to purchase goods from abroad. On the other hand, exports would become cheaper for foreign buyers, as they would be able to purchase more domestic goods with their own currency.]]> 2023-03-18 00:29:15 UTC https://padlet.com/patricioagv00/oqstd5ki0tc2ezoy/wish/2521427716 The International Fisher Effect (IFE) patricioagv00 https://padlet.com/patricioagv00/oqstd5ki0tc2ezoy/wish/2521428330 The International Fisher Effect (IFE) is a well-known theory that links interest rates and exchange rates in the international economy. It is a key concept in understanding how changes in interest rates can affect exchange rates between countries. This paper explores the implications of changes in interest rates on the IFE, including its applications and limitations.]]> 2023-03-18 00:31:18 UTC https://padlet.com/patricioagv00/oqstd5ki0tc2ezoy/wish/2521428330 Implications of Changes in Interest Rates on the International Fisher Effect: patricioagv00 https://padlet.com/patricioagv00/oqstd5ki0tc2ezoy/wish/2521428749 The IFE predicts that if there is a difference in interest rates between two countries, the currency of the country with a higher interest rate will depreciate relative to the currency of the country with a lower interest rate. This is due to the expectation of a higher return on investments in the country with the higher interest rate. As such, a rise in interest rates in one country would lead to a fall in the value of its currency relative to other countries, while a decrease in interest rates would lead to an appreciation of its currency.

The implications of changes in interest rates on the IFE can be observed in several scenarios. For instance, if the interest rates in the United States rise relative to other countries, the value of the dollar would appreciate compared to other currencies, ceteris paribus. This would result in lower exports from the United States, higher imports, and an overall decrease in the current account balance. Similarly, if the interest rates in Japan fall relative to other countries, the yen would depreciate, leading to an increase in exports, lower imports, and a rise in the current account balance.



]]> 2023-03-18 00:32:46 UTC https://padlet.com/patricioagv00/oqstd5ki0tc2ezoy/wish/2521428749 WHAT IS IFE? patricioagv00 https://padlet.com/patricioagv00/oqstd5ki0tc2ezoy/wish/2521429639 2023-03-18 00:36:15 UTC https://padlet.com/patricioagv00/oqstd5ki0tc2ezoy/wish/2521429639 EASY WAY patricioagv00 https://padlet.com/patricioagv00/oqstd5ki0tc2ezoy/wish/2521430319 The International Fisher Effect (IFE) is a theory that explains how changes in exchange rates between two countries can be influenced by differences in their inflation rates. It suggests that if one country has a higher inflation rate than another, its currency should depreciate against the currency of the country with a lower inflation rate.

For example, if Country A has an inflation rate of 5% and Country B has an inflation rate of 2%, according to the IFE, the currency of Country A should decrease in value by approximately 3% relative to the currency of Country B. This is because the higher inflation rate in Country A reduces the purchasing power of its currency compared to Country B's currency.

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