1. Discovering Data In this chapter we discussed the weak link between the real exchange rate and the trade balance. We looked at a time series diagram showing these two variables for the United States in Figure 7-4, but what about other countries? Go to the online FRED database (https://fred.stlouisfed.org) and download the data for the real effective exchange rate, the trade balance (in local currency) and GDP

(in local currency) for China and Japan from 1995 to the present.

a. For each country make a chart, like Figure 7-4, that shows the real exchange rate and the trade balance as a percent of GDP on the same line graph. Use the left vertical axis for the real exchange rate and the right vertical axis for the trade balance as a percent of GDP.

b. For each country, do you find that these variables have a strong relationship? Is it what you would expect from this chapter? Explain why this relationship might fail or even go in the opposite direction of what we might expect.