In column S, compute the difference between (Japanese quarterly inflation US quarterly inflation) and (ln(Et+3) ln(Et)). What do you learn from these data?

B D E F G H I 1 2 3 THE BANK FOR INTERNATIONAL DEVELOPMENT Exhibit 2 4 5 Selected Historical Interest Rates, Inflation Rates, & Exchange Rates 6 7 8 Date (end of month) 90-day Euro Yen Rate 90-day Euro $ Rate Qtrly Japan CPI Infl Qtrly U.S. CPI Infl Fwd FX 90-day Y/$ Spot FX Rate Y/$ Fwrd Ex Qtrly Premium 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 Mean Std. Dev. Jan-76 Feb-76 Mar-76 Apr-76 May-76 Jun-76 Jul-76 Aug-76 Sep-76 Oct-76 Nov-76 Dec-76 Jan-77 Feb-77 Mar-77 Apr-77 May-77 Jun-77 Jul-77 Aug-77 Sep-77 Oct-77 Nov-77 Dec-77 Jan-78 Feb-78 Mar-78 Apr-78 May-78 0.8075 % 0.7965% 1.2340% 1.2935% 1.5015% 1.2340% 1.6774% 1.4709% 1.5156% 1.4426% 1.5885% 1.4709% 1.6189% 1.6025% 1.4426% 1.3669% 1.5603% 1.3077% 1.3669% 1.4260% 1.4567% 1.2340% 0.9805% 0.9805% 0.2017% 0.4485% 0.7244% 0.6173% 0.2957% 0.5245% 0.6636% 1.5017% 0.9030% 1.2792% 1.3527% 1.3385% 1.3101% 1.5744% 1.4567% 1.3693% 1.3527% 1.3977% 1.2935% 1.2507% 1.2198% 1.2792% 1.2507% 1.2650% 1.2792% 1.4709% 1.3977% 1.5156% 1.5156% 1.6611% 1.7358% 1.6634% 1.7358% 1.7498% 1.7358% 1.8080% 1.8359% 1.9240% 0.36 70% 0.9549% 3.3379% 3.0693% 2.9320% 1.0050% -0.1260% 2.3589% 2.4693% 3.3481% 1.5825% 1.9324% 2.5287% 2.1506% 2.8304% 3.1600% 1.9895% 0.1162% -0.8097% 1.6092% 2.2963% 1.1547% -0.9164% -1.0268% 0.5724% 1.7114% 2.3797% 2.4804% 1.0130% 0.4469% 0.0000% 0.9818% 0.8511% 1.0317% 1.3206% 1.4620% 1.6000% 1.5908% 1.4409% 1.2903% 0.9993% 0.9964% 1.1332% 1.9691% 2.2410% 2.5036% 1.9311% 2.0563% 1.6349% 1.4916% 1.2138% 1.0753% 1.0710% 1.0667% 1.4599% 1.5852% 1.9699% 2.2151% 2.5875% 2.8207% 2.6702% 2.2728% 151.00 58.82 303.80 302.30 302.80 299.43 300.60 298.33 294.00 289.45 288.15 294.93 296.95 293.60 288.80 284.20 278.55 277.85 277.21 266.77 266.20 266.85 263.35 248.60 242.34 236.93 239.30 235.95 220.30 220.55 220.25 152.07 59.31 303.70 302.25 299.70 299.40 299.95 297.40 293.40 288.75 287.45 293.70 295.75 292.80 289.30 282.70 277.50 277.70 277.30 267.70 266.00 267.30 265.45 250.60 245.70 240.00 241.40 238.70 222.40 222.90 223.40 -0.67128 0.69618 0.0330% 0.0165% 1.0289% 0.0100% 0.2166% 0.3123% 0.2043% 0.2422% 0.2432% 0.4179% 0.4049% 0.2729% -0.1729% 0.5291% 0.3778% 0.0540% -0.0325% -0.3481% 0.0753% -0.1683% -0.7941% -0.8012% -1.3769% -1.2875% -0.8738% -1.1587% -0.9487% -1.0599% -1.4200% 41 B D E F G H I 1 2 3 THE BANK FOR INTERNATIONAL DEVELOPMENT Exhibit 2 4 5 Selected Historical Interest Rates, Inflation Rates, & Exchange Rates 6 7 8 Date (end of month) 90-day Euro Yen Rate 90-day Euro $ Rate Qtrly Japan CPI Infl Qtrly U.S. CPI Infl Fwd FX 90-day Y/$ Spot FX Rate Y/$ Fwrd Ex Qtrly Premium 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 Mean Std. Dev. Jan-76 Feb-76 Mar-76 Apr-76 May-76 Jun-76 Jul-76 Aug-76 Sep-76 Oct-76 Nov-76 Dec-76 Jan-77 Feb-77 Mar-77 Apr-77 May-77 Jun-77 Jul-77 Aug-77 Sep-77 Oct-77 Nov-77 Dec-77 Jan-78 Feb-78 Mar-78 Apr-78 May-78 0.8075 % 0.7965% 1.2340% 1.2935% 1.5015% 1.2340% 1.6774% 1.4709% 1.5156% 1.4426% 1.5885% 1.4709% 1.6189% 1.6025% 1.4426% 1.3669% 1.5603% 1.3077% 1.3669% 1.4260% 1.4567% 1.2340% 0.9805% 0.9805% 0.2017% 0.4485% 0.7244% 0.6173% 0.2957% 0.5245% 0.6636% 1.5017% 0.9030% 1.2792% 1.3527% 1.3385% 1.3101% 1.5744% 1.4567% 1.3693% 1.3527% 1.3977% 1.2935% 1.2507% 1.2198% 1.2792% 1.2507% 1.2650% 1.2792% 1.4709% 1.3977% 1.5156% 1.5156% 1.6611% 1.7358% 1.6634% 1.7358% 1.7498% 1.7358% 1.8080% 1.8359% 1.9240% 0.36 70% 0.9549% 3.3379% 3.0693% 2.9320% 1.0050% -0.1260% 2.3589% 2.4693% 3.3481% 1.5825% 1.9324% 2.5287% 2.1506% 2.8304% 3.1600% 1.9895% 0.1162% -0.8097% 1.6092% 2.2963% 1.1547% -0.9164% -1.0268% 0.5724% 1.7114% 2.3797% 2.4804% 1.0130% 0.4469% 0.0000% 0.9818% 0.8511% 1.0317% 1.3206% 1.4620% 1.6000% 1.5908% 1.4409% 1.2903% 0.9993% 0.9964% 1.1332% 1.9691% 2.2410% 2.5036% 1.9311% 2.0563% 1.6349% 1.4916% 1.2138% 1.0753% 1.0710% 1.0667% 1.4599% 1.5852% 1.9699% 2.2151% 2.5875% 2.8207% 2.6702% 2.2728% 151.00 58.82 303.80 302.30 302.80 299.43 300.60 298.33 294.00 289.45 288.15 294.93 296.95 293.60 288.80 284.20 278.55 277.85 277.21 266.77 266.20 266.85 263.35 248.60 242.34 236.93 239.30 235.95 220.30 220.55 220.25 152.07 59.31 303.70 302.25 299.70 299.40 299.95 297.40 293.40 288.75 287.45 293.70 295.75 292.80 289.30 282.70 277.50 277.70 277.30 267.70 266.00 267.30 265.45 250.60 245.70 240.00 241.40 238.70 222.40 222.90 223.40 -0.67128 0.69618 0.0330% 0.0165% 1.0289% 0.0100% 0.2166% 0.3123% 0.2043% 0.2422% 0.2432% 0.4179% 0.4049% 0.2729% -0.1729% 0.5291% 0.3778% 0.0540% -0.0325% -0.3481% 0.0753% -0.1683% -0.7941% -0.8012% -1.3769% -1.2875% -0.8738% -1.1587% -0.9487% -1.0599% -1.4200% 41