CFA Vol-2 Economics

The bid price is the price, defined in terms of the price currency, at which the counterparty is willing to

Buy

The offer price is the price, in terms of the price currency, at which that counterparty is willing to

Sell

The bid–offer spread depends on (five factor)

(1) the currency pair involved,

(2) the time of day,

(3) market volatility,

(4) the transaction size,

and (5) the relationship between the dealer and the client.

Covered interest rate parity:

id= Domestic risk free rate

if= Foreign risk free rate

S=Spot

F= Foreign

“Covered” yani korunmalı durumda, yatırımcı xx sözleşmesi yaparak kur riskini ortadan kaldırır.

Vadeli döviz (forward)

In other words covered interest rate pariy is kind of a no-arbitrage condition

“Uncovered” yani korunmasız durumda, yatırımci xx üstlenir, yani gelecekteki döviz kuru kesin değildir.

kur riskini

_{According to uncovered interest rate parity, the expected percentage change of the spot exchange rate should, on average, be reflected in the nominal interest rate spread.}

PPP equilibrium

i= Nominal interest rate

r= Reel interest rate

πe= Expected inflation rate

International Fisher Effect (IFE) diyor ki:

İki ülke arasındaki faiz oranı farkı, o ülkelerin para birimleri arasındaki beklenen kur değişimini açıklar.

_{The international Fisher effect and, by extension, real interest rate parity assume that currency risk is the same throughout the world. However, not all currencies carry the same risk.}

A currency peg is when a country

fixes the value of its currency to another currency or a basket of currencies, instead of letting it float freely in the foreign exchange market.

Production function:

Y = AF(K,L)

Y: level of aggregate output in the economy

L: Quantity of labor

K: Estimate of capital services, provided by the stock of equipment and structures

A is a multiplicative scale factor referred to as total factor productivity (TFP) (reflect technology)

Specifying the Cobb–Douglas production:

• Kişi başına üretim y
  
  

• Teknoloji düzeyi A’ya,
  
  

• Kişi başına sermaye k’nın α. kuvvetine bağlıdır.

Growth rate of potential GDP

 Long-term growth rate of labor force + Long-term growth rate in labor productivity

The classical model predicts that in the long run, the adoption of new technology results in

a larger but not richer population.

The objective of the neoclassical growth model is to determine the long-run growth rate of output per capita and relate it to

(a) the savings/investment rate,

(b) the rate of technological change,

and (c) population growth.

Augmented Solow yaklaşımı

Üretim fonksiyonuna daha fazla girdi eklemek:

• İnsan sermayesi
  
  

• Ar-Ge
  
  

• Kamu altyapısı

ENDOGENOUS GROWTH MODEL

1. teknolojiyi açıklamak:
   
   

   • Teknolojik ilerleme dışsal değil, ekonominin içinden kaynaklanan bir süreç olarak ele alınır.
     
     

2. Sürdürülebilir büyüme:
   
   

   • Büyüme kendi kendini sürdüren bir süreç olarak ortaya çıkar.
     
     

   • Ekonomi zorunlu olarak steady-state’e ulaşmaz.
     
     

3. Sermaye ve getiriler:
   
   

   • Neoklasik modelin aksine, azalan marjinal getiriler yok.
     
     

   • Tasarruf oranının artışı kalıcı olarak ekonomik büyümeyi artırır.
     
     

4. Artan ölçek getirisi:
   
   

   • Bu modeller, ekonomide artış gösteren ölçek getirisi olasılığını da dikkate alır.

Absolute convergence means that

developing countries, regardless of their particular characteristics, will eventually catch up with the developed countries and match them in per capita output.

Conditional convergence means that

convergence is conditional on the countries having the same saving rate, population growth rate, and production function.

Club convergence,

where only rich and middle-income countries that are members of the club are converging to the income level of the world’s richest countries.

In the long run xx is the most important driver of stock market performance.

, the GDP growth rate

EM countries are better able to influence their exchange rates because their reserve levels as a ratio of xx are generally much greater than those of DM countries.

Average daily FX turnover

Inflation is significantly xx in the pre-crisis period.

higher

The absolute version of PPP asserts that the equilibrium exchange rate between two countries is determined entirely by xx

the ratio of their national price levels

According to the relative version of PPP, the percentage change in the spot exchange rate (%ΔS_f/d) will be completely determined

by the difference between foreign and domestic  inflation rates (Π_f -Π_d).

Solow growth accounting equation

ΔY/Y = ΔA/A + α(ΔK/K) + (1 – α)(ΔL/L)where

ΔY/Y = Growth in gross domestic product, GDP

ΔA/A = Growth in total factor productivity = 1/5%

ΔK/K = Growth rate of capital = 3.2%

ΔL/L = Growth rate of labor = 0.4%

α = Output elasticity of capital = 0.3

1 – α = Output elasticity of labor = 0.7

Yatırımların (fiziki sermaye birikiminin) büyüme oranını sadece yeni bir durağan duruma (steady state) ulaşılana kadar geçici olarak artırması,xx Modelin özelliğidir.

Neoklasik (Solow) Modelin özelliğidir.

Which of the following growth theories assumes that technological progress translates into higher population growth?

Classical model

The impact from investment spending on a country's GDP growth rate is: larger when the country's existing physical capital stock is small/larger.

Small

By Endogeneous model, higher savings (may or may not) permanently raise the growth rate of output

May

The relative version of PPP states that the percentage change in the spot exchange rate will be completely determined by the difference between ?

the foreign and domestic inflation rates

Labor productivity growth accounting equation

Growth rate in potential GDP = Growth rate in the labor force + Growth rate in labor productivity

Neoclassical model, the steady-state growth rate