Short Excel/Stata work

Go to the website for the University of Pennsylvania World Tables 9: (a) [login to view URL] Export the data in either Excel Format or Stata Format. Choose seven countries: Canada, China, Japan, the U.K. and three other countries where the first letters of the three additional countries must correspond to your own initials. [Example: Someone named John Smith might choose Jordan and Senegal or Jamaica and Seychelles. If a name begins with the letters W, X, or Y choose countries whose names begin with A or Z instead.] (b) Choose the variables pl_gdpo (Price Level of Gross Domestic Product) and xr (Exchange Rate) for each of these countries, and also pl_gdpo for the US. (c) Calculate the real exchange rate relative to the US for each chosen country as rer=pl_gdpo(US)/pl_gdpo. Now normalise the value of xr so that the first year in the data series (usually 1950, but for some countries such as China it starts a few years later) is equal to rer1950. Then divide all subsequent values of xr by the normalised initial ratio xr1950/rer1950. The idea here is to be able to compare the movements of the real and nominal exchange rates on the same axes. (d) Plot both the variables you calculated together in the same graph (years on the horizontal axis, nominal and real exchange rates on the vertical axes). (10 marks) (e) Answer the following questions, next to the graph or at the top of the spread-sheet: (i) According to your calculations which countries’ exchange rates are usually over-valued? Under-valued? Correspond to the theory of Purchasing Power Parity (PPP)? (10 marks) (ii) What explains the difference between the nominal and real exchange rates, i.e. what is happening to relative prices? (10 marks)