I need assistance with the following inquires: Does purchasing power party hold for the Turkish lira-U.S. dollar exchange rate. See attached for further inquiries.

From: Winter, E (Errol) Sent: Wednesday, July 18, 2012 9:53 AM To: Reyes, J (Jacayra) Attachments: Mini CaseTurkish LiraData.xls This mini-case is designed to test your knowledge of Purchasing Power Parity and your ability to apply linear regression. Does purchasing power party hold for the Turkish lira-U.S. dollar exchange rate? Among other things, Mr. Mobaus would like you to do the following: 1. 2. Regress the rate of exchange rate changes (percentage change in the exchange rate) on the inflation rate differential to estimate the intercept and the slope coefficient, and interpret the regression results. Interpreting the regression results means that you will have to test for statistical significance and explain how the results support or are inconsistent with PPP theory. Also, discuss the relation between the percentage change in the exchange rate and the inflation differential. For example, if there is a negative 1% inflation differential, what is the predicted percentage change in the exchange rate? Data sources: I have downloaded the data for you. It is in an excel file which is linked below. However, you may wish to verify that consumer price index data for OECD countries is available from the OECD, http://www.oecd.org. Also, exchange rate data is available from the website: http://pacific.commerce.ubc.ca/xr/data.html. Mini Case Turkish Lira Data Note: You will need to calculate both the inflation rate differential and the percentage change in the exchange rate (a.k.a. rate of exchange rate changes) from the data provided. Annual Annual inflation rate inflation rate (%) - United (%) - Turkey States 1990 exchange rate - direct quote ($/Lira) - end of year (Jan of following year) 0.0003372306700000 1991 66.00% 4.20% 0.0001895664500000 1992 70.10% 3.00% 0.0001157107500000 1993 66.10% 3.00% 0.00651606300000% 1994 105.20% 2.60% 0.00248164100000% 1995 89.10% 2.80% 0.00165113800000% 1996 80.40% 2.90% 0.00088945100000% 1997 85.70% 2.30% 0.00047087700000% 1998 84.60% 1.50% 0.00030953400000% 1999 64.90% 2.20% 0.00018305600000% 2000 54.90% 3.40% 0.00014885800000% 2001 54.40% 2.80% 0.00007306500000% 2002 45.00% 1.60% 0.00006004300000% 2003 30.30% 2.40% 0.00007423700000%