Question
Use the information shown in the table below to answer the next questions. Country Inflation rate Reference Period China 2.5% August 2022 Japan 3% August
Use the information shown in the table below to answer the next questions.
Country | Inflation rate | Reference Period |
China | 2.5% | August 2022 |
Japan | 3% | August 2022 |
Saudi Arabia | 3% | August 2022 |
Switzerland | 3.5% | August 2022 |
South Korea | 5.7% | August 2022 |
Germany | 7.9% | August 2022 |
United States of America | 8.3% | August 2022 |
a) Discuss the factors that could explain the differences in inflation rates across countries as shown in the table above.
Given that the inflation in the United States is higher than all other countries and the difference in the inflation rates persists for some years,
b) Do you think the U.S. dollar will appreciate or depreciate against the other currencies and will purchasing power parity be violated? Why or why not?
c) Will U.S. interest rates be higher or lower than Japanese interest rates and will interest rate parity hold? Why or why not?
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