Question II: Open Economy Macroeconomics (25 points) For this question you will need to download four data series: nominal exchange rate US-Canada (EUS/C AN), nominal exchange rate Chile-Canada (EChile/C AN), PPP exchange rate US-Canada (E PPP US/C AN) and PPP exchange rate US-Chile (E PPP US/Chile). You can find EUS/C AN and EChile/C AN at the Bank of Canada website

Question II: Open Economy Macroeconomics (25 points) For this question you will need to download four data series: nominal exchange rate US-Canada (EUS/C AN), nominal exchange rate Chile-Canada (EChile/C AN), PPP exchange rate US-Canada (E PPP US/C AN) and PPP exchange rate US-Chile (E PPP US/Chile). You can find EUS/C AN and EChile/C AN at the Bank of Canada website (https://www.bankofcanada.ca/). The frequency of all the series should be “annual average rates”’, and they should all start in 2007 and finish in 2016. To download the nominal exchange rate series, go to the Bank of Canada website and under “statistics”’ select “exchange rates”’. Look for “Historical Noon and Closing Rates” and from the drop down menu select the frequency (Type) and country (Currency) mentioned above. In terms the of format of the data, you should select CSV, which downloads the data directly to an Excel file. After downloading the data series, you should make sure that the series are in the correct units (i.e. foreign currency per CAD). You can find E PPP US/C AN and E PPP US/Chile) in the course website under problem sets. To answer the following questions, generate plots in Microsoft Excel and copy them into a Microsoft Word document. a (10 points) In two separate graphs, plot both the nominal and purchasing-power parity adjusted exchange rates over time for US-Canada and for Chile-Canada correspondingly (hint: you can calculate E PPP Chile/C AN using E PPP US/C AN and E PPP US/Chile). In your graphs, time should be represented in the horizontal axis and each of the exchange rates in the vertical axis. b (10 points) In some Canadian border towns and cities, cross border shopping is a particular sensitive issue (Canadian families crossing the border into US to purchase the same goods that can be purchased at home). Use your graph in part a) to indicate the years in which you expect a large volume of cross border shopping. Explain. c (5 points) Assume that the government of Canada’s only goal is to reduce cross-border shopping. What policy do you recommend that they implement to achieve this goal