Comparison of the CPI for Italy and Germany Base

Description

There is a graph(Just one graph.) I need to plot using Excel. The instructions are attached and the part I need is marked as red. You need download data from the source provided and the way to access data from source is also listed.

As the instruction says, the “my country” for me is Italy and the “base country” is Germany. (As these two country use same currency, the Exchange rate is 1 which means the normalized price ratio line is not needed.) The base year is 2010.

Paper Assignment for International Monetary Economics
Each student assigned a unique foreign country. The United States will be the base country for most
students. Students who are studying a country which trades primarily with the European Union may
want to use Germany as the base country. (In this note for simplicity, I assume the US is the base
country. Adjust as appropriate.)
Students should use approximately 10-15 years of data (if available). You may use your judgement on
which years to use, but more recent years are preferable.
FIRST DRAFT (2 pages. You must have a thesis statement).
Goals: Briefly describe the economic state of your country using trends in GDP, government debt as a
fraction of GDP, net exports position (surplus or deficit, relative to GDP), patterns of investment, and
relative movement in equity index. Requirements:







2 page descriptive analysis;
Graph of your country’s real GDP growth rate relative to US real GDP growth rate (either plot
rates- which should be of similar magnitudes, or stack two graphs of levels);
Graph of your country’s Real GDP and Real Current Account over time (stacked);
Graph of your country’s Real GDP and Real Investment (Gross Fixed Capital Formation) over
time (stacked);
Graph of your country’s Government Debt level and yield over time (stacked, or dual axes);
Graph of your country’s Government Debt Yield relative to US Government Debt Yield;
Graph of your country’s equity index relative to US equity index (again, either indices, rates of
growth or stacked values);
List of the codes of each series you used in your graphs, and the long labels, noting the source
(i.e. either World Development Indicators or IMF Financial Data).
MAKE SURE ALL SERIES ARE IN CONSTANT (REAL) VALUES. OR, USE %GDP.
SECOND DRAFT (1 page. You must have a thesis statement).
Does the exchange rate of your data appear to support the theory of Purchasing Power Parity?
Requirements:


2 page descriptive analysis;
Graph of Nominal Exchange Rate and Relative Prices over time (Figure 16-2 from text, “The
Yen/Dollar Exchange Rate and Relative Japan-US Price Levels, 1980-2012,” is a good model);
To construct the graph, you will need 3 data series: the official exchange rate, your country’s CPI level,
and the base country’s CPI level. First, construct a ratio of your country’s CPI level to the base country’s
CPI level. Normalize that ratio so that it is 100 in the base year. (Divide the entire series by the value of
the first year, and multiply by 100.) Also, normalize the exchange rate to be 100 in the base year.
(Divide the entire series by the value of the first year, and multiply by 100.) Plot the normalized price
ratio and the normalized exchange rate on the same graph.
FINAL DRAFT (5 pages. You must have a thesis statement).
The final draft is a refinement of the first draft and second draft. There should be no need for additional
graphs, though you may have to correct your graphs. Discuss your country’s macroeconomic state over
the period in question. Is your country successful (relative to the base country)? Is it fully engaged in
the global economy? What is the Exchange Rate policy? Is the currency over-valued or undervalued?
Does the real exchange rate appear to be driven by relative prices (as implied by PPP), or does it appear
to be driven by policy, or by the relative prospects of your country in the global economy? Does the RER
appear to affect the Current Account? Your goal is to try to explain movements in Real GDP and the
exchange rate by the movements of the other series.
Notes on Graphs
Only use the sources below for data:
World Development Indicators
http://databank.worldbank.org/data/reports.aspx?source=world-development-indicators
International Financial Statistics
http://data.imf.org/?sk=4C514D48-B6BA-49ED-8AB9-52B0C1A0179B
If you cannot find the data in either of these, you may look at St. Louis Federal Reserve database (FRED)
https://fred.stlouisfed.org/
Also, OECD data include series, such as government debt levels, for member countries. You may want to
look there.
All of these sites allow you to download raw data or charts. ONLY DOWNLOAD RAW DATA. Part of the
exercise is to create the charts yourself. More importantly, creating the graphs yourself gives you
control and you know exactly what you are plotting.
On this point, make sure that you plot data which has been adjusted for inflation. Either data which has
been adjusted already (data in constant rather than current dollars), or ratios of nominal variables. If
two nominal variables are both rising with prices, their ratio will cancel out this effect.
Each graph should have a number and a title. You should refer to the relevant graph numbers within
the body of the text as you discuss it.
Be careful if you are plotting two series where the levels are of very different magnitudes. This happens
if you have a small country and are comparing to a large country, or if you are comparing a large number
such as real GDP to a smaller number such as real NX- which is often close to zero. If the magnitudes of
your series are different, either use two different y-axes (one on the left and one on the right), or stack
your graphs.
Make sure I can identify which lines are which. If you have two different colors on the screen, they
often print out to look identical. Either label them by hand, or chose a line format with dashes or some
other distinguishing characteristic.
SUPPORTING RESEARCH.
The main point of this project is to give you experience with making and analyzing economic time series
graphs. But it is sometimes useful to put the graphs into perspective. I do not want you to conduct
extensive research on your countries, but reading 1-3 articles would contribute to the analysis. One
source of additional information is the OECD outlook. The website is below.
http://www.oecd.org/eco/outlook/
Notes on Writing
Each paper should have a bibliography if only to site the sources of the data you used. Reed College has
a good description of how to cite for economics papers.
https://www.reed.edu/economics/parker/Citation%20Guide.pdf
Your overall goal with this paper is first to show ME that you have learned the theories I have taught,
and second to show that you know how to write an interesting, well-organized paper that makes a
point.
For the first goal you must cover the links between the exchange rate, net exports and GDP, and the
links between inflation. net exports and GDP. Also, there are links to interest rate differentials and the
exchange rate. And there are links between expected profits and the exchange rate. And there are links
between fiscal debt and the exchange rate. (These last two potentially work through changing
expectations of the future exchange rate.)
For the second goal, follow these guidelines.
1) Your paper should have a thesis statement.
2) Each paragraph should make one point. Typically, that means one graph one paragraph, though
not always. Always, the first sentence of a paragraph should be a mini-thesis sentence setting
out the point the paragraph is intended to make.
3) Your paper should have a conclusion which summarizes the main point the paper has made.
General style points to consider.
1) Avoid flowery language.
2) Avoid overly complex sentences. Typically, a series of short sentences conveys information
more clearly than even a grammatically correct sentence with many clauses.
3) In an economics paper, it is fine to use the same word repeatedly if the analysis is similar.
Check your paper just as you would check your math. A good exercise is to make an outline of your
paper by cutting and pasting first your thesis statement, followed in an outline format by each of your
paragraphs’ topic sentences. You should be able to read through this outline and it should make a
coherent argument.
Finally, a few more details on a thesis statement. A thesis statement should set out a hypothesis that is
not obvious by construction. An example would be: “In this paper, I present data on various
macroeconomic times series. I show that in my country, variations in the nominal exchange rate in the
last 10 years do not appear to have had a significant impact on the economy as net exports has fallen
but GDP has risen. I further show that it is difficult to explain movements in the exchange rate by the
data series I display. Purchasing Power Parity does not appear to have held, and though the fiscal deficit
has fallen and my country’s stock exchange has risen more quickly than has the US stock exchange, my
country’s currency has experienced a sustained depreciation.”
ACCESSING DATA
Only use the sources below for data:
World Development Indicators
http://databank.worldbank.org/data/reports.aspx?source=world-development-indicators
International Financial Statistics
http://data.imf.org/?sk=4C514D48-B6BA-49ED-8AB9-52B0C1A0179B
You may, if desperate, use the St. Louis Federal Reserve database (FRED)
https://fred.stlouisfed.org/
I have found that the documentation for the FRED website is inferior.
All of these sites allow you to download raw data or charts. ONLY DOWNLOAD RAW DATA. Part of
the exercise is to create the charts yourself. More importantly, creating the graphs yourself gives you
control and you know exactly what you are plotting.
Each website is slightly different. International Financial Statistics has the best interest rate data. World
Development has a Standard and Poor index for most countries. Check all three before you decide the
data are not available.
International Financial Statistics. Go to the page noted above. Click on Query (an element in bar in top
1/3 of page).
1) Click on pencil next to “Time”. A menu with 3 tabs on top comes up. Click on “Timeline” tab.
Select years (deselect quarters and months).
2) Click on the pencil next to “country”. Choose both your country, and your base country (either
the US or Germany).
3) Click on the pencil next to “indicator”. These are the variables you are searching for. Search for
appropriate indicator. Select a lot. You never know what might be available. For each indicator,
you want a series which is available both for your country and the base country.
4) Click on “Export” from bar at top 1/3 of page. From drop-down menu, chose “.xlsx”. A file with
the data downloads onto your computer.
World Development Indicators. Go to the page noted above.
1) On the left, choose your country. Click on the word “country”. Options will appear. Choose both
your country, and your base country (either the US or Germany).
2) Choose series. Click on the word “series”. This has the absolutely worst search engine I have
ever worked with. Play around with it. If you type in “equity” the S&P Global Index comes up,
if available for your country.
3) Choose time. Click on the word “time”. Choose most recent 15.
4) Once you have selected country, series and time, in the middle of the page, click on “Apply
Changes”.
5) In the right corner, click on “Download Options”, and then “Excel”. The series chosen download
onto your computer.

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