Introduction to fundamental analysis
The most important and challenging component of foreign exchange dealing is the ability to analyze trends in the market and, accordingly, to anticipate what factors and how to affect exchange rates. In the movement of prices laid down as the possibility of quick profit, or the opposite - the possibility of rapid and significant losses. Therefore, the correct prediction of market movements, the assessment of certain events, as well as manipulation of rumors and expectations - a necessary part of the broker or dealer, and his pledge of success. There are a huge number of factors that affect how the entire foreign exchange market as a whole and on individual currencies.
There are two basic ways to analyze the situation on the market - fundamental and technical. The first is assessing the situation in terms of political, economic, financial and credit policies. The second is based on the methods of graphic research and analysis based on mathematical principles.
As part of fundamental analysis examines the various reports of the monetary and financial developments in the world, the phenomenon of political and economic life as individual countries and the international community as a whole, which may affect the development of the foreign exchange market, the analysis to which the change in exchange rates are may result. It is important information on markets and major companies such as market-makers, interest rates of central banks, the government's economic policy, possible changes in national political life, as well as all sorts of rumors and expectations. Fundamental analysis - one of the most difficult parts - and at the same time, one of the key parts of the forex market. To conduct fundamental analysis is more complicated than any other, because the same factors are in different conditions unequal value on the market, or may become a decisive absolutely insignificant. You need to know the relationship and mutual influence of two different currencies, reflecting the relationship between the various states, the history of currency, determine the cumulative result of various economic measures and establish the relationship between absolutely unrelated at first glance events. In addition to some original and most formal rules, there is most need work experience in the foreign exchange market.
Fundamental factors are estimated, usually from two angles:in terms of influence on official discount rate;in terms of state of the national economy.
Fundamental analysis
Fundamental factors are the key macroeconomic indicators the state of the national economy, working in the medium term, influencing the foreign exchange market participants and the level of the exchange kursa.Agenstvo Reuters publishes a special page in the main forecasts of economic indicators developed countries: ECI / I. Usually, this macroeconomic statistics published by national statistical offices (in the U.S. - the statistical bureau of the ministry, in Russia, Goskomstat of Russia). News agency Reuters gives users fresh statistics on the time of publication (release of data). Known schedule the publication of statistics of different countries: what day and what time or another pokazatli (figures) will be officially announced, and immediately transferred to the system, Reuters, emerged on the screen reyterovskih monitors around the world.Broken down by day of week are average forecast of economists and research centers on the expected performance of National Statistics (Column FORECAST). Given time of publication, and previous indicator values (column REVS). These data are carefully analyzed by dealers and analytical departments of banks, and, based on the scenario worked out the exchange rate behavior and tactics of arbitrage.Usually in world currency markets, where 80 percent of arbitrage transactions are conducted with the U.S. dollar, the biggest impact are the data on the U.S. economy, which leads to an increase or decrease in the dollar relative to other currencies. We can distinguish two aspects of temporal influence of fundamentals on the exchange rate:- Long-term impact, that is, given a set of fundamental factors will determine the status of the national economy, and hence the trend of exchange rate changes over months and years. This medium-term forecasting of the course is used to open the strategic positions. For example, long-term negative U.S. trade balance with Japan is the cause of a permanent depreciation of the dollar against the yen (from 250 in 1985 to 80 in 1995). For medium-and long-term effects are taken into account the statistical indicators for more than a month period (quarter, year).- Short-term, that is, the influence of the published statistical indicators on the exchange rate in effect for several hours or sometimes minutes. For example, the publication of data to reduce the U.S. trade deficit with Japan could lead to some increase in the dollar against the yen in a few hours (from 88.20 to 89.50). Short-term impact on the course have indicators for short periods (week or month).Foreign exchange dealers, the decision to buy or sell currencies after appearing on the screens of monitors messages about the importance of economic indicators, should immediately answer some questions, the correct solution of which depends on the size of the profit or loss.
Exchange rate by purchasing power parity(Purchasing Power Parity Rate - PPP Rate)The course of PPP is the ideal exchange rate, calculated as a weighted average price ratio for the standard basket of industrial, consumer goods and services between the two countries. In an ideal model of the formation rate based on price only trade between the two countries with each other the real exchange rate would be equal to the rate of purchasing power parity.In its simplest form, abstracting from the actual trading volume and share of different goods in consumption, the formula for finding a course on purchasing power parity can be as follows: where and RiDEM PiUSD - sootvetvetstvenno prices in German marks and U.S. dollars for goods and services in Germany and United States, included in the standard basket of industrial and private consumption in these countries; Wi - the share of these goods and services in the industrial and private consumption (GNP or national income); n - number of products included in korzinu.Chem significant sample, the more representative in result of the exchange rate.Method for determining and adjusting the rate according to purchasing power parity exchange peculiar system of fixed exchange rates (the gold standard, Bretton Woods system), currently used by countries of the European Monetary System (European currencies tied to each other and are adjusted based on purchasing power parity). In the Soviet Union before the start of reforms in the sphere of currency regulation dollar to the ruble from time to time determined by the method of purchasing power parity and then weekly adjusted according to fluctuations in the dollar against other currencies.According to experts in June 1994. currency dollar exchange rate to the deutsche mark by purchasing power parity was:on consumer prices (consumer prices) 1.68Industrial prices (producer prices) 1.82Cost of services (services prices) 2.05_________________________________________On average, 1.82In fact the dollar to the brand in June 1994 stood at 1.65, then there is a lot lower than the PPP.In the long run (several years) the real exchange rate tends to fluctuate around the value of purchasing power parity, but parity itself is constantly recalculated as changes in price levels in comparable countries (for example, in 1990. The dollar to the German mark at purchasing power parity amounted to 2.13) .The theory of purchasing power parity (PPP) is attempting to consolidate the economic factors that explain the formation of supply and demand of currencies and their dynamics.One of the fundamental concepts underlying the theory of PPP - the rule of one price: goods cost the same - purchased directly on foreign exchange, or after conversion. In other words, for every product we have the following expression:Pi (t) = S (t) x P `i (t)t - index of point in time;i - index of the goods;S (t) - current exchange rate;Pi (t) - the price of goods in national currency;P `i (t) - the price of goods in foreign currency.In this formulation, the rules laid down one price hypothesis of zero distribution costs, the absence of trade barriers (both tariff and nontariff) and homogeneity of products. The rule of one price is valid only if all items have equal weight in both countries. Hence seriously conclude that if economic structures are different, then the theory of PPP is wrong, even if the rule of one price holds.In the relativistic version of the theory of PPP does not come from the absolute levels of prices, and their indexes. Thus, measured not purchasing power parity, and their index:P (t + T) / P (t) = [S (t + T) / S (t)] x [P `(t + T) / P` (t)]This formulation of the theory of PPP rather than its absolute version. Nevertheless, it is not good because it allows failures in cases where the production structure and relative prices of goods in different economies are changing. However, at short intervals vremeniteoriya PPP would provide an explanation dostatochnopravdopodobnye trends of exchange rate changes.The theory of PPP is also good because it allows to take into account the impact of inflation. Let f - the rate of inflation in the economy, and f `- the rate of inflation in the foreign economy. Then, by definition of inflation,P (t + T)--------- = 1 + fP (t) P `(t + T)---------- = 1 + f `P `(t)Using the definition of a relativistic theory of PPP, we obtain:S (t + T)---------S (t) = 1 + f-------1 + f `S (t + T) - S (t)----------------S (t) = f - f `-------1 + f `The meaning of this expression is that a revaluation occurs when national inflation is stronger than overseas.PPP calculations are widely practiced for the development of national economic policy. Central banks rely on the PPP estimates in determining the parities of their currencies. Of particular importance is the control for the real exchange rate (R):P (t + T) / P (t)R (t + T) = --------------------------------------[S (t + T) / S (t)] x [P `(t + T) / P` (t)]If there is, R <1, then the real purchasing power of the national currency relative to foreign goods falls, and increasing export competitiveness and vice versa, R> 1 means that the domestic currency depreciates faster than the differential between domestic and foreign inflation.
Gross National Product - GNP(Gross National Product - GNP)Gross national product is a key indicator of the national economy, and includes as a component less important economic indicators. GNP formula is as follows: GNP = C + I + G + X - M,where C - Consumption (Consumption); I - Investments (Investments); G - government spending (Government Spendings); X - Export (Export); M - imports (Import).Sgschestvuet a direct correlation between changes in GNP and exchange rates:GNP ^ - ^ RATE CURRENCYThe logic here may be as follows: GDP growth means the general good state of the economy, the increase in industrial production, inflow of foreign investment in the economy, the growth of exports. Increased foreign investment and exports leads to an increase in demand for domestic currency by foreigners, which is reflected in the growth rate. Continuing for several years, growth in GDP leads to "overheating" economy, the growth of inflationary pressures and, consequently, to the expectation of rising interest rates (as the main anti-inflation measures), which also increases the demand for currency.
Real interest rates(Real Interest Rates)This factor is extremely important because determines the overall profitability of investments in the economy (interest on bank deposits, yield on investments in bonds, the level of the average profit rate, etc.). Changes in interest rates and currency exchange rate is directly related to:INTEREST RATES ^ - ^ EXCHANGE RATESpeaking of bets, you should keep in mind the real interest rate, that is, nominal interest minus inflation rates. Moreover, if nominal rates rise more slowly than inflation and GDP, the exchange rate may even decrease. For example, in the U.S. in 1994. in conditions of stable economic growth, growth rates lagged behind the growth in GNP and inflation - real interest rates tended to decrease. Federal Reserve (the U.S. central bank) for a year on several occasions raised the level of interest rates, however slightly, for fear of harsh actions to slow down the process of economic recovery (after the recession of 1990).. As a result, the dollar exchange rate to major hard currencies dropped during all of 1994. (Eg, USD / DEM has fallen from 1.76 in January to 1.48 in October 1994.).Through a deeper analysis, it should be noted that in the formation of the exchange rate of two currencies central role played by the difference in interest rates between the two countries (percent differential). If the two countries about the same level of real interest rates, characterizing the same return on investment in the economy of any country, the increase in central bank of one of the countries the level of interest rates, causes a shift in favor of profitability of investments in that currency, which increases the demand for currency and increase its rate.
Unemployment rate(Unemployment Rate)Factor of employment can be considered as two values: either the unemployment rate (that is, the percentage of unemployed to the total working-age population), or as the inverse index number of employees.The unemployment rate is usually published as a percentage: unemployment rate = 8.6%; while there is an inverse dependence of the change in the unemployment rate and exchange rate:UNEMPLOYMENT v - ^ EXCHANGE RATEIn accordance with modern economic theory can not be reached zero rate of unemployment (there is always a seasonal, structural, frictional unemployment). Therefore, macroeconomic full employment for industrial countries corresponds to the unemployment rate of approximately 6%.Change of employment (particularly in the U.S.) describes the rate NFP - Non-Farm Payrolls, that is, employment in nonagricultural industries. The growth rate describes the NFP job growth and leads to an increase in the dollar.
Inflation(Inflation)The rate of inflation or devaluation of national currency, measured in the growth rate of prices. There are two rate changes in price levels:PPI (Producer Price Index) - index of changes in production prices (wholesale shipments of manufactured goods). This index, calculated as a percentage of the previous period, is the primary sign of inflation, as producer prices are included in consumer prices;CPI (Consumer Price Index) - index of consumer prices - a direct indicator of inflation.The rate of inflation and exchange rate changes are inversely related:^ INFLATION - v EXCHANGE RATEOne of the indicators that affect the state of inflation, is the amount of money in circulation (money supply), consisting of several monetary aggregates, differing in the degree of liquidity - of M1 (in the UK M0) to the M4. The biggest impact of inflation has increased M1 - cash and balances in current accounts on demand.Inflation has a strong effect on employment. In 1958, the British economist A. Phillips proposed a graphical model of demand inflation, stating such an effect. Using the data in their work the British statistics for 1861 years. He built a curve, clearly showing the inverse relationship between changes in wage rates and unemployment rates. Along the curve A. Phillips found that an increase in unemployment in Britain in excess of 2.5-3% led to a sharp slowdown in prices and wages. Phillips concluded that the government can use an increase in inflation to combat unemployment. Later, this conclusion is theoretically argued economist Robert Lipsey.Phillips curve shows the inverse relationship between inflation and unemployment rate. The higher inflation rate, the lower the unemployment rate. Also created a modification of the Phillips curve for development of economic policy. This work was done by American economists Robert Solow and Paul Samuelson. They replaced the curve in the wage rate on the growth rate of commodity prices, or inflation. With this curve, it became possible to calculate a balance between high enough levels of employment and production and the definition of price stability. If the government is considering the level of unemployment in the country as extremely high, then lowering it to be held low and monetary measures stimulating demand. This leads to increased production and job creation. Unemployment rate decreases, but simultaneously increase the rate of inflation.
The most important and challenging component of foreign exchange dealing is the ability to analyze trends in the market and, accordingly, to anticipate what factors and how to affect exchange rates. In the movement of prices laid down as the possibility of quick profit, or the opposite - the possibility of rapid and significant losses. Therefore, the correct prediction of market movements, the assessment of certain events, as well as manipulation of rumors and expectations - a necessary part of the broker or dealer, and his pledge of success. There are a huge number of factors that affect how the entire foreign exchange market as a whole and on individual currencies.
There are two basic ways to analyze the situation on the market - fundamental and technical. The first is assessing the situation in terms of political, economic, financial and credit policies. The second is based on the methods of graphic research and analysis based on mathematical principles.
As part of fundamental analysis examines the various reports of the monetary and financial developments in the world, the phenomenon of political and economic life as individual countries and the international community as a whole, which may affect the development of the foreign exchange market, the analysis to which the change in exchange rates are may result. It is important information on markets and major companies such as market-makers, interest rates of central banks, the government's economic policy, possible changes in national political life, as well as all sorts of rumors and expectations. Fundamental analysis - one of the most difficult parts - and at the same time, one of the key parts of the forex market. To conduct fundamental analysis is more complicated than any other, because the same factors are in different conditions unequal value on the market, or may become a decisive absolutely insignificant. You need to know the relationship and mutual influence of two different currencies, reflecting the relationship between the various states, the history of currency, determine the cumulative result of various economic measures and establish the relationship between absolutely unrelated at first glance events. In addition to some original and most formal rules, there is most need work experience in the foreign exchange market.
Fundamental factors are estimated, usually from two angles:in terms of influence on official discount rate;in terms of state of the national economy.
Fundamental analysis
Fundamental factors are the key macroeconomic indicators the state of the national economy, working in the medium term, influencing the foreign exchange market participants and the level of the exchange kursa.Agenstvo Reuters publishes a special page in the main forecasts of economic indicators developed countries: ECI / I. Usually, this macroeconomic statistics published by national statistical offices (in the U.S. - the statistical bureau of the ministry, in Russia, Goskomstat of Russia). News agency Reuters gives users fresh statistics on the time of publication (release of data). Known schedule the publication of statistics of different countries: what day and what time or another pokazatli (figures) will be officially announced, and immediately transferred to the system, Reuters, emerged on the screen reyterovskih monitors around the world.Broken down by day of week are average forecast of economists and research centers on the expected performance of National Statistics (Column FORECAST). Given time of publication, and previous indicator values (column REVS). These data are carefully analyzed by dealers and analytical departments of banks, and, based on the scenario worked out the exchange rate behavior and tactics of arbitrage.Usually in world currency markets, where 80 percent of arbitrage transactions are conducted with the U.S. dollar, the biggest impact are the data on the U.S. economy, which leads to an increase or decrease in the dollar relative to other currencies. We can distinguish two aspects of temporal influence of fundamentals on the exchange rate:- Long-term impact, that is, given a set of fundamental factors will determine the status of the national economy, and hence the trend of exchange rate changes over months and years. This medium-term forecasting of the course is used to open the strategic positions. For example, long-term negative U.S. trade balance with Japan is the cause of a permanent depreciation of the dollar against the yen (from 250 in 1985 to 80 in 1995). For medium-and long-term effects are taken into account the statistical indicators for more than a month period (quarter, year).- Short-term, that is, the influence of the published statistical indicators on the exchange rate in effect for several hours or sometimes minutes. For example, the publication of data to reduce the U.S. trade deficit with Japan could lead to some increase in the dollar against the yen in a few hours (from 88.20 to 89.50). Short-term impact on the course have indicators for short periods (week or month).Foreign exchange dealers, the decision to buy or sell currencies after appearing on the screens of monitors messages about the importance of economic indicators, should immediately answer some questions, the correct solution of which depends on the size of the profit or loss.
Exchange rate by purchasing power parity(Purchasing Power Parity Rate - PPP Rate)The course of PPP is the ideal exchange rate, calculated as a weighted average price ratio for the standard basket of industrial, consumer goods and services between the two countries. In an ideal model of the formation rate based on price only trade between the two countries with each other the real exchange rate would be equal to the rate of purchasing power parity.In its simplest form, abstracting from the actual trading volume and share of different goods in consumption, the formula for finding a course on purchasing power parity can be as follows: where and RiDEM PiUSD - sootvetvetstvenno prices in German marks and U.S. dollars for goods and services in Germany and United States, included in the standard basket of industrial and private consumption in these countries; Wi - the share of these goods and services in the industrial and private consumption (GNP or national income); n - number of products included in korzinu.Chem significant sample, the more representative in result of the exchange rate.Method for determining and adjusting the rate according to purchasing power parity exchange peculiar system of fixed exchange rates (the gold standard, Bretton Woods system), currently used by countries of the European Monetary System (European currencies tied to each other and are adjusted based on purchasing power parity). In the Soviet Union before the start of reforms in the sphere of currency regulation dollar to the ruble from time to time determined by the method of purchasing power parity and then weekly adjusted according to fluctuations in the dollar against other currencies.According to experts in June 1994. currency dollar exchange rate to the deutsche mark by purchasing power parity was:on consumer prices (consumer prices) 1.68Industrial prices (producer prices) 1.82Cost of services (services prices) 2.05_________________________________________On average, 1.82In fact the dollar to the brand in June 1994 stood at 1.65, then there is a lot lower than the PPP.In the long run (several years) the real exchange rate tends to fluctuate around the value of purchasing power parity, but parity itself is constantly recalculated as changes in price levels in comparable countries (for example, in 1990. The dollar to the German mark at purchasing power parity amounted to 2.13) .The theory of purchasing power parity (PPP) is attempting to consolidate the economic factors that explain the formation of supply and demand of currencies and their dynamics.One of the fundamental concepts underlying the theory of PPP - the rule of one price: goods cost the same - purchased directly on foreign exchange, or after conversion. In other words, for every product we have the following expression:Pi (t) = S (t) x P `i (t)t - index of point in time;i - index of the goods;S (t) - current exchange rate;Pi (t) - the price of goods in national currency;P `i (t) - the price of goods in foreign currency.In this formulation, the rules laid down one price hypothesis of zero distribution costs, the absence of trade barriers (both tariff and nontariff) and homogeneity of products. The rule of one price is valid only if all items have equal weight in both countries. Hence seriously conclude that if economic structures are different, then the theory of PPP is wrong, even if the rule of one price holds.In the relativistic version of the theory of PPP does not come from the absolute levels of prices, and their indexes. Thus, measured not purchasing power parity, and their index:P (t + T) / P (t) = [S (t + T) / S (t)] x [P `(t + T) / P` (t)]This formulation of the theory of PPP rather than its absolute version. Nevertheless, it is not good because it allows failures in cases where the production structure and relative prices of goods in different economies are changing. However, at short intervals vremeniteoriya PPP would provide an explanation dostatochnopravdopodobnye trends of exchange rate changes.The theory of PPP is also good because it allows to take into account the impact of inflation. Let f - the rate of inflation in the economy, and f `- the rate of inflation in the foreign economy. Then, by definition of inflation,P (t + T)--------- = 1 + fP (t) P `(t + T)---------- = 1 + f `P `(t)Using the definition of a relativistic theory of PPP, we obtain:S (t + T)---------S (t) = 1 + f-------1 + f `S (t + T) - S (t)----------------S (t) = f - f `-------1 + f `The meaning of this expression is that a revaluation occurs when national inflation is stronger than overseas.PPP calculations are widely practiced for the development of national economic policy. Central banks rely on the PPP estimates in determining the parities of their currencies. Of particular importance is the control for the real exchange rate (R):P (t + T) / P (t)R (t + T) = --------------------------------------[S (t + T) / S (t)] x [P `(t + T) / P` (t)]If there is, R <1, then the real purchasing power of the national currency relative to foreign goods falls, and increasing export competitiveness and vice versa, R> 1 means that the domestic currency depreciates faster than the differential between domestic and foreign inflation.
Gross National Product - GNP(Gross National Product - GNP)Gross national product is a key indicator of the national economy, and includes as a component less important economic indicators. GNP formula is as follows: GNP = C + I + G + X - M,where C - Consumption (Consumption); I - Investments (Investments); G - government spending (Government Spendings); X - Export (Export); M - imports (Import).Sgschestvuet a direct correlation between changes in GNP and exchange rates:GNP ^ - ^ RATE CURRENCYThe logic here may be as follows: GDP growth means the general good state of the economy, the increase in industrial production, inflow of foreign investment in the economy, the growth of exports. Increased foreign investment and exports leads to an increase in demand for domestic currency by foreigners, which is reflected in the growth rate. Continuing for several years, growth in GDP leads to "overheating" economy, the growth of inflationary pressures and, consequently, to the expectation of rising interest rates (as the main anti-inflation measures), which also increases the demand for currency.
Real interest rates(Real Interest Rates)This factor is extremely important because determines the overall profitability of investments in the economy (interest on bank deposits, yield on investments in bonds, the level of the average profit rate, etc.). Changes in interest rates and currency exchange rate is directly related to:INTEREST RATES ^ - ^ EXCHANGE RATESpeaking of bets, you should keep in mind the real interest rate, that is, nominal interest minus inflation rates. Moreover, if nominal rates rise more slowly than inflation and GDP, the exchange rate may even decrease. For example, in the U.S. in 1994. in conditions of stable economic growth, growth rates lagged behind the growth in GNP and inflation - real interest rates tended to decrease. Federal Reserve (the U.S. central bank) for a year on several occasions raised the level of interest rates, however slightly, for fear of harsh actions to slow down the process of economic recovery (after the recession of 1990).. As a result, the dollar exchange rate to major hard currencies dropped during all of 1994. (Eg, USD / DEM has fallen from 1.76 in January to 1.48 in October 1994.).Through a deeper analysis, it should be noted that in the formation of the exchange rate of two currencies central role played by the difference in interest rates between the two countries (percent differential). If the two countries about the same level of real interest rates, characterizing the same return on investment in the economy of any country, the increase in central bank of one of the countries the level of interest rates, causes a shift in favor of profitability of investments in that currency, which increases the demand for currency and increase its rate.
Unemployment rate(Unemployment Rate)Factor of employment can be considered as two values: either the unemployment rate (that is, the percentage of unemployed to the total working-age population), or as the inverse index number of employees.The unemployment rate is usually published as a percentage: unemployment rate = 8.6%; while there is an inverse dependence of the change in the unemployment rate and exchange rate:UNEMPLOYMENT v - ^ EXCHANGE RATEIn accordance with modern economic theory can not be reached zero rate of unemployment (there is always a seasonal, structural, frictional unemployment). Therefore, macroeconomic full employment for industrial countries corresponds to the unemployment rate of approximately 6%.Change of employment (particularly in the U.S.) describes the rate NFP - Non-Farm Payrolls, that is, employment in nonagricultural industries. The growth rate describes the NFP job growth and leads to an increase in the dollar.
Inflation(Inflation)The rate of inflation or devaluation of national currency, measured in the growth rate of prices. There are two rate changes in price levels:PPI (Producer Price Index) - index of changes in production prices (wholesale shipments of manufactured goods). This index, calculated as a percentage of the previous period, is the primary sign of inflation, as producer prices are included in consumer prices;CPI (Consumer Price Index) - index of consumer prices - a direct indicator of inflation.The rate of inflation and exchange rate changes are inversely related:^ INFLATION - v EXCHANGE RATEOne of the indicators that affect the state of inflation, is the amount of money in circulation (money supply), consisting of several monetary aggregates, differing in the degree of liquidity - of M1 (in the UK M0) to the M4. The biggest impact of inflation has increased M1 - cash and balances in current accounts on demand.Inflation has a strong effect on employment. In 1958, the British economist A. Phillips proposed a graphical model of demand inflation, stating such an effect. Using the data in their work the British statistics for 1861 years. He built a curve, clearly showing the inverse relationship between changes in wage rates and unemployment rates. Along the curve A. Phillips found that an increase in unemployment in Britain in excess of 2.5-3% led to a sharp slowdown in prices and wages. Phillips concluded that the government can use an increase in inflation to combat unemployment. Later, this conclusion is theoretically argued economist Robert Lipsey.Phillips curve shows the inverse relationship between inflation and unemployment rate. The higher inflation rate, the lower the unemployment rate. Also created a modification of the Phillips curve for development of economic policy. This work was done by American economists Robert Solow and Paul Samuelson. They replaced the curve in the wage rate on the growth rate of commodity prices, or inflation. With this curve, it became possible to calculate a balance between high enough levels of employment and production and the definition of price stability. If the government is considering the level of unemployment in the country as extremely high, then lowering it to be held low and monetary measures stimulating demand. This leads to increased production and job creation. Unemployment rate decreases, but simultaneously increase the rate of inflation.
No comments:
Post a Comment