IDEAS home Printed from https://ideas.repec.org/p/vas/papers/87.html
   My bibliography  Save this paper

A Classroom Experiment on Exchange Rate Determination with Purchasing Power Parity

Author

Abstract

We develop a classroom experiment on exchange rate determination appropriate for undergraduate courses in macroeconomics and international economics. Students represent citizens from different countries and need to obtain currency to purchase goods. By participating in a sealed bid auction to buy currency, students gain a better understanding of currency markets and the determination of exchange rates. The implicit framework for exchange rate determination is one in which prices are perfectly flexible (in the long run) so that purchasing power parity (PPP) prevails. Additional treatments allow students to examine the impact of transport costs, nontradable goods and tariffs on the exchange rate and to explore possible deviations from PPP.

Suggested Citation

  • Mitchell, David & Rebelein, Robert P. & Schneider, Patricia & Simpson, Nicole B. & Eric Fisher, "undated". "A Classroom Experiment on Exchange Rate Determination with Purchasing Power Parity," Vassar College Department of Economics Working Paper Series 87, Vassar College Department of Economics.
    • Handle: RePEc:vas:papers:87
    as

    Download full text from publisher

    File URL: http://irving.vassar.edu/VCEWP/VCEWP87.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Alan M. Taylor & Mark P. Taylor, 2004. "The Purchasing Power Parity Debate," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 135-158, Fall.
    2. repec:bla:jecsur:v:15:y:2001:i:2:p:221-36 is not listed on IDEAS
    3. Denise Hazlett & Joshua Wookey, 2003. "The Effects of Real vs. Nominal Interest Rates on Investment: A Classroom Exercise," Journal of Economic Insight, Missouri Valley Economic Association, vol. 29(1), pages 109-122.
    4. Denise Hazlett, 2004. "A Classroom Unemployment Compensation Experiment," Southern Economic Journal, John Wiley & Sons, vol. 70(3), pages 694-704, January.
    5. Charles A. Holt, 1999. "Teaching Economics with Classroom Experiments: A Symposium," Southern Economic Journal, John Wiley & Sons, vol. 65(3), pages 603-610, January.
    6. Bradley T. Ewing & Jamie B. Kruse & Mark A. Thompson, 2004. "Money Demand and Risk: A Classroom Experiment," The Journal of Economic Education, Taylor & Francis Journals, vol. 35(3), pages 243-250, July.
    7. Michael J. Haupert, 1996. "An Experiment in Comparative Advantage," The Journal of Economic Education, Taylor & Francis Journals, vol. 27(1), pages 37-44, January.
    8. Denise Hazlett, 2003. "A Search-Theoretic Classroom Experiment with Money," International Review of Economic Education, Economics Network, University of Bristol, vol. 2(1), pages 80-90.
    9. Lisa R. Anderson & Sarah L. Stafford, 2006. "Does Crime Pay? A Classroom Demonstration of Monitoring and Enforcement," Southern Economic Journal, John Wiley & Sons, vol. 72(4), pages 1016-1025, April.
    10. Denise Hazlett & Cynthia D. Hill, 2003. "Calculating the Candy Price Index: A Classroom Inflation Experiment," The Journal of Economic Education, Taylor & Francis Journals, vol. 34(3), pages 214-223, January.
    11. Denise Hazlett & Jeela Ganje, 1999. "An Experiment with Official and Parallel Foreign Exchange Markets in a Developing Country," The Journal of Economic Education, Taylor & Francis Journals, vol. 30(4), pages 392-401, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Paul Johnson, 2018. "Exchange Rates: An Asynchronous Classroom Experiment," Journal of Economics Teaching, Journal of Economics Teaching, vol. 3(2), pages 206-217, December.
    2. Jannett Highfill & Raymond Wojcikewych, 2011. "The U.S.-China Exchange Rate Debate: Using Currency Offer Curves," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 17(4), pages 386-396, November.
    3. KimMarie McGoldrick, 2010. "Advancing the Scholarship of Teaching and Learning in Economics," Chapters, in: Michael K. Salemi & William B. Walstad (ed.), Teaching Innovations in Economics, chapter 3, Edward Elgar Publishing.
    4. repec:kap:iaecre:v:17:y:2011:i:4:p:386-396 is not listed on IDEAS
    5. Mitchell, David & Hunsader, Kenneth & Parker, Scott, 2011. "A Futures Trading Experiment: An Active Classroom Approach to Learning," MPRA Paper 56496, University Library of Munich, Germany, revised 2011.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mitchell, David & Hunsader, Kenneth & Parker, Scott, 2011. "A Futures Trading Experiment: An Active Classroom Approach to Learning," MPRA Paper 56496, University Library of Munich, Germany, revised 2011.
    2. Tisha Emerson & Denise Hazlett, 2011. "Classroom Experiments," Chapters, in: Gail M. Hoyt & KimMarie McGoldrick (ed.), International Handbook on Teaching and Learning Economics, chapter 7, Edward Elgar Publishing.
    3. Zheng, Liping & Severe, Sean, 2016. "Teaching the macroeconomic effects of tax cuts with a quasi-experiment," Economic Analysis and Policy, Elsevier, vol. 51(C), pages 55-65.
    4. Levent, Korap, 2007. "Modeling purchasing power parity using co-integration: evidence from Turkey," MPRA Paper 19584, University Library of Munich, Germany.
    5. Gürkaynak, Refet S. & Kısacıkoğlu, Burçin & Lee, Sang Seok, 2022. "Exchange rate and inflation under weak monetary policy: Turkey verifies theory," CFS Working Paper Series 679, Center for Financial Studies (CFS).
    6. Mohsen Bahmani-Oskooee & Tsangyao Chang & Kuei-Chiu Lee, 2016. "Panel asymmetric nonlinear unit root test and PPP in Africa," Applied Economics Letters, Taylor & Francis Journals, vol. 23(8), pages 554-558, May.
    7. Zanin, Luca & Marra, Giampiero, 2012. "Assessing the functional relationship between CO2 emissions and economic development using an additive mixed model approach," Economic Modelling, Elsevier, vol. 29(4), pages 1328-1337.
    8. N/A, 2007. "Real Convergence, Price Level Convergence and Inflation in Europe," Bruegel Working Papers 267, Bruegel.
    9. Paul Johnson, 2018. "Exchange Rates: An Asynchronous Classroom Experiment," Journal of Economics Teaching, Journal of Economics Teaching, vol. 3(2), pages 206-217, December.
    10. Simões, Oscar R. & Marçal, Emerson Fernandes, 2012. "Agregação temporal e não-linearidade afetam os testes da paridade do poder de compra: Evidência a partir de dados brasileiros," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 66(3), October.
    11. Philip Hans Franses & Dick van Dijk, 2006. "A simple test for PPP among traded goods," Applied Financial Economics, Taylor & Francis Journals, vol. 16(1-2), pages 19-27.
    12. Deng, Kent & O'Brien, Patrick, 2021. "The Kuznetsian paradigm for the study of modern economic history and the Great Divergence with appendices of literature review and statistical data," LSE Research Online Documents on Economics 108563, London School of Economics and Political Science, LSE Library.
    13. Grubb, Farley, 2010. "Testing for the Economic Impact of the U.S. Constitution: Purchasing Power Parity Across the Colonies versus Across the States, 1748–1811," The Journal of Economic History, Cambridge University Press, vol. 70(1), pages 118-145, March.
    14. Liew, Venus Khim-Sen & Baharumshah, Ahmad Zubaidi & Habibullah, Muzafar Shah & Midi, Habshah, 2008. "Monetary exchange rate model: supportive evidence from nonlinear testing procedures," MPRA Paper 7293, University Library of Munich, Germany.
    15. Georgios Chortareas & George Kapetanios, 2013. "How Puzzling Is The Ppp Puzzle? An Alternative Half‐Life Measure Of Convergence To Ppp," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 28(3), pages 435-457, April.
    16. Grossmann, Axel & Kim, Jintae, 2022. "The impact of U.S. dollar movements and U.S. dollar states on non-perishable commodity prices," Research in International Business and Finance, Elsevier, vol. 61(C).
    17. Donatella Gatti & Christophe Rault & Anne-Gael Vaubourg, 2012. "Unemployment and finance: how do financial and labour market factors interact?," Oxford Economic Papers, Oxford University Press, vol. 64(3), pages 464-489, July.
    18. Ahmad, Yamin S., 2008. "The effects of small sample bias in Threshold Autoregressive models," Economics Letters, Elsevier, vol. 101(1), pages 6-8, October.
    19. Lukas Menkhoff & Rafael Rebitzky & Michael Schroder, 2008. "Do dollar forecasters believe too much in PPP?," Applied Economics, Taylor & Francis Journals, vol. 40(3), pages 261-270.
    20. Robert A. Blecker, 2009. "Long-Run Growth in Open Economies: Export-Led Cumulative Causation or a Balance-of-Payments Constraint?," Working Papers 2009-23, American University, Department of Economics.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:vas:papers:87. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sean Flynn The email address of this maintainer does not seem to be valid anymore. Please ask Sean Flynn to update the entry or send us the correct address (email available below). General contact details of provider: https://edirc.repec.org/data/edvasus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.