Showing papers on "Purchasing power published in 1973"

On a Correct Measure of Inflation

Abstract: Two commonly cited and newsworthy price indices are the Bureau of Labor Statistic's Consumer Price Index and the Commerce Department's GNP deflator. These indices have become an important part of our economic intelligence and are frequently considered to be the operational counterparts of what economists call "the price level." They, therefore, often are used as measures of inflation and often are targets or indicators of monetary and fiscal policy. Nevertheless, these price indices, which represent measures of current consumption service prices and current output prices, are theoretically inappropriate for the purpose to which they are generally put. The analysis in this paper bases a price index on the Fisherian tradition of a proper definition of intertemporal consumption and leads to the conclusion that a price index used to measure inflation must include asset prices. A correct measure of changes in the nominal money cost of a giverl utility level is a price index for wealth. If monetary impulses are transmitted to the real sector of the economy by producing transient changes in the relative prices of service flows and assets (i.e., by producing short-run changes in "the" real rate of interest), then the commonly used, incomplete, current flow price indices provide biased short-run measures of changes in "the purchasing power of money." The inappropriate indices that dominate popular and professional literature and analyses

Trefftzs Award: The Variation of the Return on Stocks in Periods of Inflation

Abstract: The bear market of the late sixties amidst inflation has led to growing concern over the validity of the proposition that stocks provide a good hedge against inflation. Conflicting arguments have been raised on both sides of the issue but a synthesis has as yet failed to emerge. The gains resulting from a careful assessment of the various propositions are obvious. If stock prices are adversely affected by inflation, the financial analyst must search for other hedges against the erosion of the purchasing power of money, while the economist must note that inflation has a depressing effect on economic growth through the rise of the cost of capital.

A comparison of some short-cut methods of estimating real product per capita

Abstract: Several recent studies of short-cut estimates comparing real income (on a purchasing power basis) of countries are reviewed, including methods comparing real income based on indicators, like electricity consumption. New estimates are presented for 101 countries which had a tradition of conventional national income estimates in 1965, and for 40 countries without extended national income series. One conclusion from the empircial analysis was that until there exist a large number of countries for which purchasing power estimates of real income are available, it is difficult to discriminate between alternative short-cut methods using indicators, and difficult to estimate real per capita incomes of low income countries without substantial errors of estimate. The paper advocates more purchasing power estimates, and institutionalizing the collection of international prices of specified items so that abbreviated market baskets can be readily compared across countries.

A CPI-Futures Market

Abstract: If governments cannot control inflation, consumers must learn to live with it, however difficult that may be.' But the task of adapting to the uncertainties of inflation could be eased by the development of appropriate forward markets. Commodity futures provide a hedge against fluctuations in the price of a limited menu of commodities ranging from plywood to frozen orange juice and pork bellies. And in the foreign exchange market, it is possible to hedge against future changes in the value of the dollar vis-a-vis other currencies. Why not extend the concept of a futures market to provide a means of hedging against fluctuations in the general price level, as measured by the market basket with which the Bureau of Labor Statistics constructs the consumer price index. A CPI-Future is a promise to pay a sum of money sufficient to buy, at a specified maturity date, a BLS market basket of goods which would have cost $1.00 if it had been purchased in the 1967 base year. Anyone who buys a CPI-Future through his broker will receive at maturity a sum of money equal to whatever the CPI turns out to be at that date; and at maturity the buyer will pay at the price determined in today's market for CPI-Futures. Conversely, the seller of a CPI-Future promises to deliver a specific amount of purchasing power, however many dollars that may turn out to be, in return for the number of dollars specified when the CPI-Future was sold. For example, if the equilibrium price of CPIFutures maturing 1 year hence is 130 when the CPI stands at 125, it means that next year's dollars are depreciated in the market place by 4 percent vis-h-vis the present. It also means that the buyer of a CPIFuture is guaranteed however many dollars are required to buy as much as $1.00 would have purchased in 1967; he has bought certainty.2

Price, purchasing power and real product comparisons in latin america

Abstract: The paper begins with a discussion of the concepts used and the scope of their application. Then the purchasing power parity rates for LAFTA countries in 1968 are presented and analyzed. With the aid of such rates the real gross domestic products of these countries in 1968 are estimated. Among other conclusions, it is found that these differ quite importantly from GDP calculations using foreign exchange rates, even within the LAFTA area. Finally, the levels of consumer prices in the region in 1968 are compared, and these are contrasted with the results of a similar survey undertaken in 1960.

Financial counterparts of saving and investment and inconsistency in some simple macro models

Abstract: Financial assets play two roles in the economy. They provide wealth-holders with assets which relieve the saver of having to own and operate real capital, and they serve to transfer purchasing power from surplus- to deficit-spending decision units. Macroeconomic theory until recently has concentrated almost exclusively on the portfolio role of financial assets (including money), leaving implicit their role in financing expenditure.1

Three International Commodity Agreements: The Experience of East Africa

Abstract: Introduction Pressures for international commodity agreements that seek, by means of export restriction schemes, to raise the aggregate export earnings of producing countries are increasing. Such pressures reflect (a) the willingness of consumer countries to make income transfers to poorer countries through this politically acceptable medium, (b) the wish of some producing countries to protect their export crop industries from unwanted competition from new producers, and (c) the desire of international civil servants to promote development from developed country bases. The purpose of the present paper is to strike a discordant note in this otherwise agreeable congruence of interests by focusing attention on the distribution of gains from international commodity agreements among producing countries, with particular attention to the relative shares of the gains that the three East African countries have obtained or are likely to obtain from the agreements that affect three of their principal export crops: coffee, sisal, and tea. The three agreements in question are the International Coffee Agreement (ICA), now in its second 5-year term, the informal sisal agreement (ISA) under the auspices of the Consultative Sub-Committee of the Food and Agriculture Organization of the United Nations (FAO) Study Group on Hard Fibres, which came into effect in January 1968, and the informal tea agreement (ITA) under the FAO Consultative Committee on Tea, which has been in operation just over a year. While the language used to phrase the stated objectives of each of these agreements differs, the implied objectives and means of achieving them are the same, namely, to increase export earnings by getting producing countries to act together quasimonopolistically in restricting supply against an inelastic demand. Thus, the 1968 ICA under Article I has the stated objectives of eliminating fluctuations in coffee prices and increasing the purchasing power of coffee

Accounting for Inflation—Recent Proposals and Their Effects

Abstract: A time-honoured convention in accounting has been that accounts should be based on historic cost, with all items being recorded in terms of the purchasing power of the pound at the date of each transaction. In a period of rapid inflation, accounts on the traditional basis become distorted and dangerously misleading. The authors describe the theory and practice of the proposals of the Accounting Standards Steering Committee for current purchasing power accounting and examine replacement cost accounting, comprehensively applied, as an alternative. They point out the advantages, despite somewhat greater practical difficulties, of current value accounting. A sample of large United Kingdom companies is analysed and the effect on their earnings of the A.S.S.C.'s proposals is estimated where these figures are not already published. Share price movements by different industry sectors over the last five years are examined in relation to changes in earnings on inflation accounting principles. It is stressed that gaining from inflation accounting is not the same as gaining from inflation, and that liquidity is a separate question. Problems of taxation (notably on stock appreciation) are discussed and practice in other countries is mentioned, as are the implications for price controls, trade unions, and indexation. The authors hope that the Sandilands Committee on Company Accounts and Inflation will find a convincing case for inflation-adjusted accounts to form the basis for taxation and price controls. They look forward to the gradual abandonment of historiccost accounts, regarding the proposals of the A.S.S.C. as a desirable but imperfect first step, and urge that meantime investors and creditors should make their own estimates of the impact of inflation on particular companies.

Case for special schools for the distributive trades in Africa

Abstract: Fifty or more years ago much of Nigeria and other African countries still lacked the rudiments of a lively business in the modern sense of the word. This was mainly because there were much less goods and services to dispose of, much less purchasing power, much less serviceable means of transport for handling the meagre surpluses than are available today. However, there existed centres of aboriginal economic organization which also, even in a rudimentary way, achieved the circulation of goods. For instance, relevant information is available which indicates that even where barter prevailed, extrafamilial and intertribal exchanges were to be found, while what might be termed protomarkets, where particular kinds of goods were bartered at particular times, existed. From the point of view of the functional common denominator, exchange, therefore, proofs abound which falsify the concept that separates different levels of “the market” or of “marketing” and concentrates attention only on the “modern” aspect. This is to say that what existed in Africa in this regard was, and to some extent is, the first end of a continuum whose other end is the modern market. In many cases, a movement toward the middle of this continuum and even to the modern end is today observable in nearly every country in Africa. Thus, in truth, the difference is not in kind but rather in degree. What I am trying to emphasize is that the trading instinct is strong in many Africans.

Implications for Agricultural Economists

Abstract: farm production and lowered rates of gain for livestock, plus unforeseen production failures in importing countries-influences that economists often assume away or declare exogenous. But the lagged effect of past crop production levels, the positioning of hog and cattle cycles, changes in per capita purchasing power and its distribution, and long term export indications are the sorts of phenomena that are part and parcel of professional agricultural policy and price analysis. Yet agricultural economists provided little insight during the fall of 1972 of the impending crunch in supply relative to demand. One must assume either that the profession does not have properly specified economic relationships and reliable estimates of the structure for the modern-day market for agricultural products or that the basic analytics of the current market though available and reasonably accurate were not utilized in a conscientious and integrated fashion. The Council of Economic Advisers implies that the former was true. The market relationships, they would contend, are unlike the structure of old. Thus, it would be erroneous to apply directly or indirectly the supply elasticities and demand elasticity matrices developed during the late 1950's and 1960's in analysis of present-day agriculture. If all this is true, the analytical expertise of the profession is indeed badly in need of repair. While substantial changes in many individual economic relationships undoubtedly have occurred, it is puzzling that fairly comprehensive studies, reported as late as 1971 [3], do not seem to indicate a general transformation of the agricultural demand and supply structure. Perhaps the primary reason for surprise over food price increases was a combination of lack of effort by agricultural economists and the unforeseen influences mentioned earlier after all. But whatever the true explanation, it could be argued that the profession did not do its job. If the economic relationships are indeed reasonably valid and the expertise exists, why did the profession fail? Was it lack of coordination or leadership? Even if policymakers could not have altered the events of last year had we anticipated them correctly, our lack of informed analysis diminishes our creditability for future council.

The Advantages of Air Cargo Distribution in Perspective

Abstract: One of the most difficult dilemmas facing industry today is the increasing cost of distribution. This is true for both incoming and outgoing supplies. The major trends in the last decade have been: the increase in industrial and consumer purchasing power; rapidly developing technology which has given rise to economies of large‐scale production; and there has been an increasing significance placed upon manufacturing productivity improvements. These trends have resulted in lower production costs; the need for geographically wider markets; and the acquisition of those management skills that are necessary to support such developments. In the last few years certain management emphasis has been placed upon minimising the rapid upward trend in administration and distribution costs. These have often more than offset any cost reduction achieved in production, with the result of a marginal price increase to the final customer. Those fields in which most advances have been made are automatic data processing and machine accounting. But the highest cost increases have often occurred within the physical distribution system. Since international marketing has developed to satisfy the extensive industrial and consumer needs, it is imperative that management realise the impact of distribution costs upon both inputs to the manufacturing process and the final product or services which they offer. The need has, therefore, arisen for senior management to tackle these problems, and air cargo distribution has recently begun to be considered, and will be increasingly important in the future.

The Emergence and Development of Monetary Concepts in Young Children.

Abstract: MF-$0.65 HC-$3.29 Behavior Development; *Cognitive Development; *Concept Formation; Economics; *Elementary School Students; Interviews; Learning Processes; Negroes; *Preschool Children; Socialization; *Socioeconomic Influences The emergence and development of monetary concepts were investigated in 80 black children ages 2 to 8 years. Three concepts explored were the age at which children (1) can name the denominations of money, (2) become aware of the values of different denominations of money,. and (3) become aware of the purChasing power of money. Socioeconomic (SES) differences were also investigated. Results indicated developmental differences about the knowledge of money. Everyday experiences were thought to be important in the development of these concepts. Lower SE3 children generally identified coins at an early age, while middle class children identified various denominations of paper money earlier. (SBT) US OE PARTmENT OF HEALTH. EDUCATION A NELFARE NATIONAL INSTITUTE OF EDUCATION THIS DOCUMENT HAS PEEN REPRO DUCE° ESACTLY AS RECEIVED FROM THE PERSON OR ORGANIZATION ORIGIN ATING IT POINTS OF VIEW OR OPINIONS STATED DO NOT NECESSARILY REPRE SENT OFFICIAL NATIONAL INSTITUTE OF EDUCATION POSITION OR POLICY. THE EMERGENCE AND DEVELOPMENT OF MONETARY CONCEPTS IN YOUNG CHILDREN

Problems of comparisons in africa with special regard to kenya

Abstract: In order to obtain the information needed to include Kenya in an international comparison of income and purchasing power, it was necessary to collect some data to supplement the regularly collected statistics. Special collection was particularly important for capital goods prices and rural consumer goods prices. The remainder of the work involved using unpublished data available from the Kenyan Statistical Division, either to obtain additional detail required by the comparison, or to maintain international consistency in concept and estimating procedures.