Homework: Monetary Economic
1) For interest rate, please use Australia 10 year government bond yield index and US 10 Year Treasury yield curve rate. Both interest rates should be mid yield data.The USD is foreign currency and unit currency for both spot / forward exchange rate in your calculation. The term of forward exchange rate is 3 month. Please use CPI Index and US - CPI Index to download inflation rate for Australia and the US respectively.
2) For each period of 2000Q4 and 2017Q4, calculate the changes of the exchange rate, forward premium (discount).
3) For each period of 2000Q4 and 2017Q4, calculate the implied forward rate by the interest rate parity (IRP). Identify the periods in which the interest rate parity (IRP) condition was violated.
4) For each period of 2000Q4 and 2017Q4, calculate the expected exchange rate by the relative purchasing power parity (PPP). Identify the periods in which the relative purchasing power parity (PPP) condition was violated. (Hint: we keep the first two decimal places when we compare expected exchange rate calculated from relative PPP and actual exchange rate next period as the theory and reality may not be perfectly matched.
5) For each period of 2000Q4 and 2017Q4, calculate the carry trade strategy returns.
Format your homework according to the following formatting requirements:
(1) The answer should be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
(2) The response also includes a cover page containing the title of the homework, the student's name, the course title, and the date. The cover page is not included in the required page length.
(3) Also include a reference page. The Citations and references should follow APA format. The reference page is not included in the required page length.