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A Classroom Experiment on Exchange Rate Determination with Purchasing Power Parity

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We develop a classroom experiment on exchange rate determination appropriate for undergraduate courses in macroeconomics and international economics. Students represent citizens from different countries and need to obtain currency to purchase goods. By participating in a sealed bid auction to buy currency, students gain a better understanding of currency markets and the determination of exchange rates. The implicit framework for exchange rate determination is one in which prices are perfectly flexible (in the long run) so that purchasing power parity (PPP) prevails. Additional treatments allow students to examine the impact of transport costs, nontradable goods and tariffs on the exchange rate and to explore possible deviations from PPP.

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File URL: http://irving.vassar.edu/VCEWP/VCEWP87.pdf
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Paper provided by Vassar College Department of Economics in its series Vassar College Department of Economics Working Paper Series with number 87.

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Handle: RePEc:vas:papers:87

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  1. Brauer, Jurgen & Delemeester, Greg, 2001. " Games Economists Play: A Survey of Non-computerized Classroom-Games for College Economics," Journal of Economic Surveys, Wiley Blackwell, vol. 15(2), pages 221-36, April.
  2. Lisa R. Anderson & Sarah L. Stafford, 2005. "Does Crime Pay? A Classroom Demonstration of Monitoring and Enforcement," Working Papers 17, Department of Economics, College of William and Mary.
  3. Alan M. Taylor & Mark P. Taylor, 2004. "The Purchasing Power Parity Debate," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 135-158, Fall.
  4. Charles A. Holt, 1999. "Teaching Economics with Classroom Experiments: A Symposium," Southern Economic Journal, Southern Economic Association, vol. 65(3), pages 603-610, January.
  5. Denise Hazlett, 2003. "A Search-Theoretic Classroom Experiment with Money," International Review of Economic Education, Economics Network, University of Bristol, vol. 2(1), pages 80-90.
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Cited by:
  1. Jannett Highfill & Raymond Wojcikewych, 2011. "The U.S.-China Exchange Rate Debate: Using Currency Offer Curves," International Advances in Economic Research, Springer, vol. 17(4), pages 386-396, November.
  2. Mitchell, David & Hunsader, Kenneth & Parker, Scott, 2011. "A Futures Trading Experiment: An Active Classroom Approach to Learning," MPRA Paper 56496, University Library of Munich, Germany, revised 2011.

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