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ECON 335 Summer 2019, California State University - Fullerton

Prof. Guannu

Semester Project

***Final draft due: June 24, 2019***

Instructions1

Download the monthly nominal exchange rates (i.e., “monthly, not seasonally adjusted”) between two

country-pairs below from the Federal Reserve Bank of St. Louis FRED database -

https://fred.stlouisfed.org/categories/95.

Mexico and the U.S. Germany and the U.S. Sweden and the U.S. China and the U.S.

Canada and the U.S. U.K. and the U.S. Denmark and the U.S. Thailand and the U.S.

Optional: Students can select additional country-pairs exchanges (e.g., South Africa and the U.S.) not

listed above. However, make sure that your preference(s) is listed on FRED’s monthly exchange rate site.

Download data from 1980 to the present. Be sure that you click the “Edit Graph” button and be sure that

the frequency is “monthly”. Create scatterplots of your two selected exchange rates (or review the

displayed scatterplot upon downloading data from FRED).

Question#1

 During which period(s) since 1980 did your exchange rates generally appreciate (e.g., yen) against the dollar. During which periods(s) did your exchange rates generally depreciate against the dollar?

 Discuss in detail using the theories of exchange rates as discussed in Econ 335 and from your literature review/research.

Instructions2

Go to: http://databank.worldbank.org/data/source/world-development-indicators

In the upper left, click “Layout”.

Change “Time” dropdown listing to “Row”.

Change “Series” dropdown listing to “Column”

Change “Country” dropdown listing to “Row”

Select “Apply Changes”

Click the “Variables” tab

Under “COUNTRY,” select your same two countries from instructions 1.

Under “SERIES,” select the following:

1. Real effective exchange rate index (2010=100) 2. Exports of goods and services (constant 2010 US$) 3. Imports of goods and services (constant 2010 US$)

Under “TIME,” choose 1980 to the present.

Select “Apply Changes”

In the upper right, click “DOWNLOAD OPTIONS” and then “ADVANCED OPTIONS”. Choose

“Excel” and set the Excel format to “.xlsx” and then make sure that “Data format” is set to “Table.” Set

“Variable format” to “Names only.” Set “NA preference” to “Blank” and “Metadata” to “No.” Then

download and save your data.

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Real Effective Exchange Rate

The real effective exchange rate is defined as the value of a country’s currency against a weighted average

of several other foreign currencies divided by a price deflator or index of costs. For example, the real

effective exchange rate is the value of Country A’s currency relative to the weighted average of Country

B, C, and D’s currencies.

The weighted average reflects the degree to which Country A trades (i.e., exports, imports) with its main

trading partners – Country B, C, and D. An increase in real effective exchange rate implies that exports

become more expensive and imports become cheaper; therefore, an increase indicates a loss in trade

competitiveness.

Question#2

In your MS Excel spreadsheet, create a variable that calculates net exports for your two countries (i.e.,

exports – imports).

1. What has been the long-term trend in the real effective exchange rate index of your countries’ respective currencies? What effect should changes in the index during this period have had on your

countries’ net exports? Explain. Be sure your response references academic journal articles (citing

our course textbook is permitted) and other credible sources.

2. What has been the trend in the real effective exchange rate index for your countries’ respective currencies over the last five years? What effect should changes in the index over this period have had

on your countries’ net exports? Explain. Be sure your response references academic journal articles

(citing our course textbook is permitted) and other credible sources.

3. What has been the trend in the real effective exchange rate index in 2016 or 2017? What effect should changes in the index during 2016 or 2017 have had on your countries’ net exports? Explain. Be sure

your response references academic journal articles (citing our course textbook is permitted) and other

credible sources.

4. Write a 5-page paper on your project. When completed, upload your paper to Titanium.