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ECON352 – Data Analysis

Guidelines for Formatting and Style

Answer the questions precisely and concisely. The main text (including figures & diagrams) should not exceed 12 pages. The reference & the appendix do not count toward the page limit.

Formatting:

· Font: Times New Roman, with size 12

· Document margins: 1-inch margins on the top, bottom and both sides of the page

· Line and paragraph spacing: single space for the main text; no extra space before or after paragraphs; single-spacing for footnotes

· Text alignment: justified text, i.e., align the text evenly along the left and right margins

· Labelling and indexing: 

Ø label each figure sequentially (e.g., Figure 1, Figure 2, …)  and name each figure clearly (e.g., Figure 2: Real Exchange Rate of the UK vs. the US: 1990-2020).

Ø Cite the figure index when you discuss the findings.
For example, “as shown in figure 2, the real exchange rate of the UK vs. the US moves …”

· Citation and Reference: use inline citations and provide a complete reference list at the end of your answer sheet if any. Check https://www.cite.auckland.ac.nz/index.html for further instructions on the academic referencing style.

The Methodology Section
To get full marks, you should include a short methodology section for each question and explain briefly

1. where you obtained the data from (provide the http link of data source),

2. how you processed the data (describe the steps of calculation)

3. how you created your graphs/plots (describe the step of visualisation)

4. anything else you did while getting/preparing the data

Put the source codes (if any) in the appendix at the end of your answer sheet and refer to them properly in the main text. (The appendix does not count towards the page limit.)

Question-by-Question Guidelines

Question 1

· Q1(a): create two figures for the UK vs. the US. Explain your findings intuitively.

· Q1(b): create two figures for the high-income country vs. the US and two figures for the upper-middle-income country vs. the US, respectively. Explain your findings intuitively.

As mentioned in the webcasts, the GDP deflator is a price index, and its annual values depend critically on the base-year choice. Since we do not have the exact data for the price of the comparable basket in the two countries, we have to use the price index as a compromised solution. For better visualisation, you may normalize the entire time series of the relative price ratio with the 1990 nominal exchange rate. This adjustment is based upon an implicit assumption that the PPP holds in 1990. Then, we check whether the actual nominal exchange rate moves towards the direction pointed by the relative price ratio.

Feel free to discuss the following issues (not required):

· Does this implicit assumption make sense for each country in your sample?

· What if the actual relative price ratio in 1990 is much higher/lower than the nominal exchange rate in 1990 in a particular country? How would it affect your findings?

Question 2

· Q2(a): report the average inflation rate differential and the average rate of depreciation for the UK relative to the US. Create ONE scatterplot, draw the 45-degree line, and label the two axes properly.

· Q2(b): the other two countries are assigned to you. Report the average inflation rate differential and the average rate of depreciation for each country relative to the US. Create ONE scatterplot for all three countries relative to the US and draw the 45-degree line, label the two axes and the country names in the figure properly.

· Explain intuitively whether your observations are in line with the prediction of relative PPP.

Question 3

· Q3(a): report the average inflation rate differential and the average interest rate differential for the three regions relative to the US. Create ONE scatter plot for the three regions relative to the US, draw the 45-degree line, and label the two axes and the country names.

· Q3(b): report the average inflation rate differential and the average interest rate differential for the other three countries relative to the US. Create ONE scatter plot for the SIX countries relative to the US, draw the 45-degree line, and label the two axes and the country names. Explain intuitively whether your observations are in line with the predictions of the Fisher effect.

The Optional Exercise:

When calculating the nominal interest rate differential, you may use the short-term interest rates for one scatterplot and then use the long-term interest rates for another scatterplot. By comparing the two scatterplots, you may discuss which one is more in line with the prediction of the Fisher effect.