Forecasting the Pan-Pacific Pyramid: Use the following data in answering problems 9.11-9.16. Industrial Unemployment Gross Domestic Product Production Rate Forecast Forecast Country Latest Qtr Qtr" 2007e 2008 Recent Qtr Latest Australia 4.3% 3.8% 4.1% 3.5% 4.6% 4.2% Japan 1.6% -1.2% 2.0% 1.9% 4.3% 3.8% United States 1.9% 3.8% 2.0% 2.2% 1.9% 4.7% Consumer Prices Interest Rates Forecast 3-month 1-yr Govt Country Year Ago Latest 2007e Latest Latest Australia 4.0% 2.1% 2.4% 6.90% 6.23% Japan 0.9% -0.2% 0.0% 0.73% 1.65% United States 2.1% 2.8% 2.8% 4.72% 4.54% Trade Balance Current Account Current Units (per US$) Last 12 mos Last 12 mos Forecast 07 Country (billion $) (billion $)% of GDP) Oct 17th Year Ago Australia -13.0 -$47.0 1.12 1.33 Japan 98.1 $197.5 4.6% 117 119 United States -810.7 - $793.2 -5.6% 1.00 1.00 Source: Data abstracted from The Economist, October 20, 2007 print edition. Unless otherwise noted, percentages are percentage changes over one year. Rec Otr = recent quarter. Values for 2007e are estimates or forecasts -5.7% 9.11 Current Spot Rates. What are the current spot exchange rates for the following cross-rates? a. Japanese yen/U.S. dollar exchange rate b. Japanese yen/Australian dollar exchange rate c. Australian dollar/U.S. dollar exchange rate 9.12 Purchasing Power Parity Forecasts. Assuming pur- chasing power parity, and that the forecasted change in consumer prices is a good proxy of predicted infla- tion, forecast the following cross-rates: a. Japanese yen/U.S. dollar in one year b. Japanese yen/Australian dollar in one year c. Australian dollar/U.S. dollar in one year 9.13 International Fisher Forecasts. Assuming Interna- tional Fisher-one version of Purchasing Power Parity-applies to the coming year, forecast the following future spot exchange rates using the government bond rates for the respective country currencies: a. Japanese yen/U.S. dollar in one year b. Japanese yen/Australian dollar in one year c. Australian dollar/U.S. dollar in one year 9.14 Implied Real Interest Rates. If the nominal interest rate is the government bond rate, and the current change in consumer prices is used as expected infla- tion, calculate the implied real rates of interest by currency a. Australian dollar "real" rate b. Japanese yen "real" rate c. U.S. dollar "real" rate 9.15 Forward Rates. Using the spot rates and 3-month interest rates in the table, calculate the 90-day for- ward rates for: a. Japanese yen/U.S. dollar exchange rate b. Japanese yen/Australian dollar exchange rate c. Australian dollar/U.S. dollar exchange rate 9.16 Real Economic Activity and Misery. Calculate the country's Misery Index (unemployment + inflation) and then use it like an interest differential to forecast the future spot exchange rate, one year into the future. a. Japanese yen/U.S. dollar exchange rate in one year b. Japanese yen Australian dollar exchange rate in one year
