Empirical analysis of interest rate parity and purchasing power parity

Abstract

Exchange rate change is a problem that has been bothering economists for a long time. These economists also try to explain the change of exchange rate through many models. But these are theoretical after all. This paper focuses on the relationships between Mainland China, Europe and Hong Kong and tries to verify whether two basic models namely, interest rate parity model and purchasing power parity model are practical or not. In addition, this paper uses the method of covered in the interest rate parity model and fill to calculate the data of the last ten year.