It is confusing to identify the base country and overseas country when calculating interest rate parity and PPP .Any tips how to overcome this problem?
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Purchasing power parity and interest rate parity
8y ago#1As I explain in my lectures, the base country is the one for which the exchange rate is quote against.
So, for example, if the exchange rate is 1.5$ = 1 Pound, then 'pound' is the base country.
If the exchange rate is 1.2 Euros = 1 $, then '$' is the base country.
@johnmoffat said: As I explain in my lectures, the base country is the one for which the exchange rate is quote against. So, for example, if the exchange rate is 1.5$ = 1 Pound, then 'pound' is the base country. If the exchange rate is 1.2 Euros = 1 $, then '$' is the base country.Ok got it but what about the purchasing power parity?
8y ago#3What about it? The rule about which is the base country is the same for both.
Interest rate parity is used to determine forward rates, purchasing power parity is used to predict future spot rates,
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