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In January 2012 the Federal Reserve Bank of America quoted the Swiss Franc (SF) vis-a-vis the dollar at a rate of SF3 = $1, and
In January 2012 the Federal Reserve Bank of America quoted the Swiss Franc (SF) vis-a-vis the dollar at a rate of SF3 = $1, and its research department forecasted that by the end of the year the price level in the United States would have risen by 10% while that of Switzerland would rise by 5%. The real rate of interest in both countries is 4%.Prove analytically that the Fischer Effect and the Interest Rate Parity Theorem guarantee consistency with the Purchasing Power Parity Theorem when real interest rates in two different countries are equal
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