Showing papers on "Purchasing power published in 1979"

Borrowing costs and the demand for rural credit

Abstract: The authors argue that high borrowing costs discourage many rural poor in low income countries from using formal loans. Borrowing costs are defined as nominal interest payments, plus borrower loan transaction costs, plus changes in the purchasing power of money. Farm level information from Bangladesh, Brazil and Colombia is presented to show that small borrowers incur substantially higher borrowing costs on formal loans than do large borrowers. It is suggested that higher nominal interest rates may induce lenders to reduce overall borrowing costs for the small and new borrower.

Variation Across Household in the Rate of Inflation

Abstract: A perfectly exact measure of purchasing power is not only unattainable, but even unthinkable. The same change of pnces affects the purchasing power of money to different persons in different ways. For to him who can seldom afford to have meat, a fall of one-fourth in the pnce of meat accompanied by a nse of one-fourth in that of bread means a fall in the purchasing power of money; his wages will not go so far as before. While to his ncher neighbour, who spends twice as much on meat as on bread, the change acts the other way. Alfred Marshall [7]

Future Technological Advances in Agriculture and Their Impact on the Regulatory Environment

Abstract: world has never known. The ingredients of that system consist of labor-saving technologies, generally stable production at high levels, progressively largerscale operations, and massive inputs of capital, management, and resources. The focus is on single crop or livestock systems. Our food production technologies have had an important impact abroad as well as at home. World food supplies heretofore have kept ahead of population. There is now more food per person, on a global scale, than at any time in recent history. However, food production alone is not enough. There must be distribution, delivery, and income-getting the food where the people are and providing them with the purchasing power to buy it. Only poor people go hungry. It is time for reassessment of our tech-

Factors Influencing Private Capital Accumulation on the "Eve of Retirement"

Abstract: THE present difficulties in social security financing will probably be further compounded in the coming decades by the low birth rate and consequent aging of the population. Workers approaching retirement may have to look forward to minimal social security payments with little prospect of "escalator clauses" to protect the purchasing power of their pensions. Therefore, it will be necessary to investigate levels of private savings to determine whether prospective retirees will have adequate "net worth" to cover their retirement needs. If these holdings are inadequate it may be necessary to formulate a policy to stimulate savings amongst families who are approaching retirement. This paper will examine net worth situations of a nationwide sample of men (National Longitudinal Study, 1966-1971) on the "eve of retirement" (age 45 to 59 at the time of the first interview) to find out (a) the current state of net worth, (b) factors related to high levels of net worth, (c) future prospects for these factors and (d) policies that might be employed to stimulate growth in net worth.

International comparisons of real product and purchasing power

Abstract: The purpose of the United Nations International Comparison Project (ICP) is to compare the purchasing power of currencies and the real gross domestic product (GDP) per capita of different countries. It is well known that the usual method of converting the GDPs of different countries to a common currency, usually U.S. dollars, at existing exchange rates is misleading because exchange rates do not necessarily reflect the purchasing power of currencies. The ICP has found that the purchasing power of a country's currency over GDP can be as much as three times its dollar exchange rate, and thus the real GDP per capita is three times the value shown in an exchange-rate conversion. The unsatisfactory nature of exchange-rate conversions has become even clearer in the past few years under the new regime of managed floating rates. Changes in exchange rates of as much as 20 percent within the space of a year have not been unusual even among major currencies.

Inflation's Impact on Life Insurance Costs: Brazilian Indexed and Nonindexed Policies

Abstract: Analytical models are applied to measure the extent of inflation's impact upon life insurance costs in Brazil, an environment characterized by endemic inflation. Indexed and nonindexed policies are examined and compared using capital budgeting valuation techniques. The analysis demonstrates that indexed policies do not fully hedge purchasing power erosion, and that financial protection available through indexed and nonindexed policies is more expensive in real terms under inflation than under stable prices. However, obtaining protection through nonindexed whole life policies is considerably more expensive than through their indexed counterparts. One of the economic institutions that is most susceptible to the effects of inflation is life insurance. In an effort to mitigate the inflation-produced erosion of values specified in life insurance contracts, several countries have adopted index-linked life insurance policies. In such contracts, the nominal values of the insurance premiums, cash values, and indemnification payments are linked to a price index and adjusted periodically in accordance with changes that have transpired in the index. This approach has been taken in countries such as Brazil, Finland, and Israel.

A note on Hicks' Composite Commodity Theorem

Abstract: 1. Hicks' Composite Commodity Theorem states that "if the prices of a group of goods change in the same proportion, that group of goods behaves just as if it were a single commodity" 1. Its usefulness in theoretical work was clearly demonstrated by Hicks to "draw up a determinate indifference system between any commodity X and money (that is to say, purchasing power in general)" 2. Further, its applicability in empirical work is evident given that applied economists invariably deal with aggregates of goods and services. It is all the more surprising then to learn that there does not seem to be a precise statement and proof of this important theorem in the literature. Our aim is to rectify this omission.

Conflict and cooperation in OPEC: some additional economic considerations

Abstract: In a recent article in this journal Paul Jabber presents a cogent analysis of many of the potential conflicts that may face OPEC over the coming years and concludes that a collapse of the cartel is extremely unlikely, even under conditions of severe political dispute among OPEC members. I share Jabber's view that a collapse of the cartel is not probable in the medium-term future. I believe, however, that Jabber has not sufficiently recognized the divergencies as well as the similarities in the economic interests of the oil countries, and that, as a result, his analysis significantly overstates the likelihood that the real level of oil prices, i.e., the nominal price adjusted for the depreciating purchasing power of currencies, is likely to average near if not above the levels initially established with the first full-fledged flexing of OPEC's muscles in 1973–74. After the 1973–74 increases, the real price of oil fell substantially through 1978, although of course nowhere near preembargo levels. Thus Jabber's prediction was that a significant increase in real oil prices will occur over the coming decade.

Competition between the Informal and Formal Sectors in Retailing: The Case of Santiago

Abstract: In this paper, an analysis of the interrelationships of small shops was made using data from a survey undertaken in 1976 of one sector of Santiago. The results show that informal foodstuffs commercial establishments are able to compete successfully with modern units (supermarkets); that they represent an efficient use of resources given the overall framework of job scarcity in the modern sector, the low purchasing power which characterizes the market and the organization of production in the informal units; and that although a decrease in their share of the market can be expected in the long run, the rhythm is difficult to forecast and the trend could be the opposite in the medium run. Indeed, until the purchasing power of the majority of the population and the prevailing mode of production of these units is substantially changed, the author argues that it is highly likely that their ability to compete will assure their survival.

To Feed this World: The Challenge and the Strategy.

Abstract: A primary component of the solution to the world food problem is for poor countries to get crop and animal production up, and to do so on hundreds of millions of small farms. But production of food in itself is not enough. The hungry have no money, and until their purchasing power is increased, giving them access to food as well as other necessities, there can be no solution to the world food problem. It must be remembered that increasing agricultural productivity and prosperity in the countryside is not a panacea for the economic and social problems of a nation. But rural progress will be crucial to the general development of most nations. Those responsible nationally for establishing goals, allocating resources, and implementing programs of work must achieve a balance among the many competing demands upon national resources. For the first time in history the world now appears to have the capability of dealing effectively with the difficult problems of hunger and poverty. And, while the food--poverty--population problem is massive and complex and will be extremely difficult and time-consuming to resolve, the existence of new capabilities provides a magnificent opportunity, perhaps a fleeting one, to deal with it effectively -more » if governments have the wisdom and the will to act.« less

Farm Growth and Estate Transfer in an Uncertain Environment

Abstract: Farm firm growth has been an important Additional uncertainties arise from the status topic for research and discussion since the of family members' health and longevity. An 1950s. Incentives for farm growth have been untimely death may create havoc in the firm and continue to be substantial. An agricultural growth and estate transfer decision process. economy characterized by technological imOne of the frequently overlooked aspects of provement, decreasing costs, competition, and the entry-growth-exit process is the relationan inelastic demand for farm products leaves ship between the desire of a father to reduce little alternative but growth for a commercial debt and consolidate his operation and that of farm. Farm growth is stimulated by the need his son to expand to a size sufficient to support to achieve size economies that arises partly an additional family. Father-son relationships from new technology and partly from large inhave assumed greater importance because of vestments in machinery and equipment. the myriad of problems now confronting farmGrowth is encouraged by the improving manaers. gerial ability of the operator as he matures and One of the most critical problems in begingains experience. Increased family living needs ning and expanding a farm operation is the treand the desire to overcome the adverse effects mendous amount of capital required. Values of of inflation on purchasing power spur interest assets and liabilities in the farm sector for sein improving the farm's earning potential. In lected years from 1940 to 1979 are shown in addition, the operator's goals may include size Table 1 [47, 48]. Value of farm real estate asaspirations to satisfy the desire for a large opsets increased by 174 percent to $573.1 billion eration or to support the family of a son or from 1969 to January 1, 1979. Most of this indaughter attempting to become established in crease was due to increases in the price per acre farming. Because the pressures for growth, of land. In deflated dollars (1967 equals 100 both internal and external to the firm, are longpercent), the value of farm real estate increased run phenomena in agriculture, continued study only $8.1 billion, about 3 percent, from 1967 to and evaluation of the process of entry, firm 1979. Increases in land values tend to be regrowth, and exit coordination are essential. flected as increases in the net worth of estabYield and price variability often contribute lished farm operators. However, increasing to wide fluctuations in net farm income. Alland values also increase the land capital rethough production technology and quired for successful entry into farming. management practices may reduce yield variaFamily financial interrelationships are often bility over time, the basic factors causing yield used as a partial solution to this problem. variability-weather and pests-remain Table 2 shows the balance sheet data on an largely outside of the control of the farm operaaverage per farm basis. Average value of astor. Producers of most agricultural commodisets per farm exceeded $264,000 in 1978. The ties are price takers. Thus, variations in worldvalue of farm real estate represents about wide weather patterns, economic conditions, three-fourths of this figure. The average per trade flows, and exchange rates increase price farm figures are somewhat misleading because variability at the farm level. Domestic actions numerous small farms are included in these of federal and state agencies affect costs and data. In many parts of the country, more than prices through policies and programs on cora half-million dollars in value of farm assets is modities, energy, the environment, trade, required for a successful economic unit. A remoney supply, credit, labor and taxes. Howcent Oklahoma study indicated that capital reever, future institutional changes remain largequired for a $7,000 return to labor and managely unknown and unpredictable. ment ranged from $200,000 to 800,000 in difAll of these uncertainties, and others, face ferent regions of the state. Average farm real the farmer who is contemplating major capital estate value per acre in Oklahoma has investments leading to growth or estate manincreased by about one-third (from $302 to agement decisions designed to modify the or$402 per acre) since the study was completed ganization or ownership of the firm's assets. [50].

Welfare and Economic Growth

Abstract: In Chapter 2, the income levels in five nations were quoted in dollars per head, as calculated by the United Nations, for 1960 and 1970 (Table 2.3). The rates used to convert GDP per head into common currency were the prevailing dollar exchange rates1. There is a number of reasons why these rates do not represent the real purchasing power of the disposable incomes of households in an economy. First, the exchange rates are (at best) the market rates necessary to balance the external monetary demand and supply of a currency. Exchange rates are therefore related to the equalisation of the total values of imports with exports. A country which consumes much of what it produces, and imports a great deal while exporting too little in value terms, could have a relatively high standard of living due to the high internal consumption levels, while possessing a low exchange rate due to the weakness of its trading position (e.g. the UK). Conversely, a country with a strong trading position, such as West Germany, may sometimes have an exchange rate which is higher than justified by comparative living standards vis-a-vis other nations.

The purchasing power parity doctrine

Abstract: Prominent among the many competing explanations that have been advanced to account for foreign exchange rate movements in the post-Bretton Woods era of floating exchange rates is the so-called purchasing power parity (PPP) theory. One of the most popular, simple, and durable explanations of exchange rate behavior, the purchasing power parity doctrine holds that currencies are valued for what they will buy. Therefore the relative external value of two currencies, i.e., the exchange rate between them, is determined by their relative internal purchasing powers as measured by the ratio of the general price levels in the two countries concerned. From this it follows that changes in relative national price levels determine changes in the exchange rate. In particular, the theory predicts that the percentage rate of change of the exchange rate will tend to equal the differential between the relative rates of price inflation at home and abroad. Thus if the domestic rate of inflation in the U. S. is, say, five percentage points higher than the comparable rate of inflation in Switzerland, the theory maintains that the dollar will tend to depreciate on the foreign exchanges at a rate of five percent relative to the Swiss franc. It follows from the theory that the way to strengthen a currency’s external value is to strengthen its internal value by reducing the domestic rate of inflation. In terms of the preceding example, the way to arrest the fall of the dollar relative to the Swiss franc is to bring the U. S. rate of inflation down into equality with the lower Swiss rate. With both currencies experiencing the same rate of inflation (or fall in internal purchasing power), their relative purchasing power will remain unchanged and the exchange rate will stabilize. The foregoing view is scarcely new. Rather it is the product of at least 175 years of past theorizing about the connection between money, prices, and exchange rates. It is no exaggeration to say that the PPP doctrine has attracted the attention of some of the leading monetary theorists of all time, including Thornton, Wheatley, Ricardo, Marshall, Cassel, von Mises, Keynes, and Viner. As proponents or critics, these economists helped formulate, develop, modify, and refine the central analytical propositions of the PPP doctrine. The purpose of this article is to identify and explain these propositions, to trace their development in the history of economic thought, and to indicate the extent of their survival in modern versions of the theory.

Debt, Trade, and the Prospects for World Economic Growth

Abstract: Publisher Summary This chapter describes the debt, trade, and the prospects for world economic growth. During the late 1960s and early 1970s, a large number of developing countries had grown accustomed to relatively significant rates of growth in real income and product. Much of this growth was predicated on a similar growth in real imports, the vast majority of which, apart from oil, came not from other LDCs, but rather from the developed OECD world, in the form of manufactured investment or intermediate goods. The unspent OPEC and other surpluses had a contradictory effect on the world economy as a whole. In particular, the oil price increase acted much like an increase in taxes on all oil-consuming nations. Had the post-October 1973 price increases for oil not occurred, these sums would have been part of purchasing power in the oil consuming countries, and part of that purchasing power would have spilled over on to imports for LDCs exports of manufactured goods and raw materials. A near depression occurred in the developed oil-consuming countries, and it provoked a slump in demand for LDC exports.

Effects of Purchasing Power Risk on Portfolio Demand for Money

Abstract: The problem of the portfolio demand for money was first rigorously studied by Tobin [22]. It has been analyzed since then, by Hicks [8] and Arrow [1], among many others. Many interesting results and implications regarding liquidity preference and risk-taking are derived in these studies. However, the effect of purchasing power risk on liquidity preference has been overlooked in these studies. In Section II of this paper, purchasing power risk is introduced in a static model to see how liquidity preference in a real-value model might be different from that of a money-value model. We show that, in the static model, the Arrow [1] and Pratt [16] measure of local risk aversion is inadequate to describe the effect of purchasing power risk on liquidity preference. Specif ically, the structure of the covariance matrix of multivariate risk (the uncertain return on risky assets and the uncertain rate of infla? tion) is also required to study economic behavior in the presence of purchasing power risk. We then proceed to derive some analytical results based upon a quadratic utility function and to compare our results with those derived by Tobin in the absence of purchasing power risk. In Section III, the effects of purchasing power risk on indivi? dual investor's liquidity preference are analyzed within the framework of a dynamic portfolio selection model. Section IV contains a brief discussion of the implications of our analysis.

Money and the Money Wage Rate

Abstract: Publisher Summary This chapter reviews a brief analysis in support of Keynes's contention that sticky money wages are an essential property of money. The support for Keynes's remarkable assertion rests largely on the contentions that the money wage rate is the numeraire of the monetary system and a flexible numeraire would cause the value of money to flex randomly, which, in turn, would destroy the usefulness of money both as a store of value and as a medium of exchange. The money wage rate is the numeraire of the economic system simply because it is the predominant determinant of the value of money. The money wage rate is the anchor price of the economy. To have a stable numeraire, sticky money wages are essential. Sticky wage rates imply sticky costs of production and a relatively stable value of money. Thereafter for Keynes, the utility of money is solely derived from its exchange value and the services money provide can be rendered only if there is sufficient stability in its purchasing power in buying the goods that it represents. Money cannot survive for long if its value is subject to frequent random variations is that such fluctuations would destroy its general acceptability.

On how to measure poverty

Abstract: The meaningfulness of a poverty measure depends on both the social acceptability of the poverty line and the accuracy of the measured distribution of purchasing power to which the line is applied. In particular, the use of linear programming to construct a minimum food budget and the uncritical use of the 1975 Family Income and Expenditures Survey of the National Census and Statistics Office has led Tan and Holazo(1978) to some very questionable conclusions. As early as 1975, the Social Indicators Project, making the first effort to construct poverty thresholds for application to a national cross-section of purchasing power (namely the FIES series of the NCSO), showed that absolute and relative poverty worsened during 1961-1971. In 1977 the PREPF project found that the 1975 FIES had very serious defects, and rejected using it to update the poverty trend; on the basis of independent PREPF surveys, adjusted for consistency with the National Income Accounts, it felt that about three-fifths of all households in 1975 should be rated as poor (below P10,000 annual income per households, somewhat more generous than the average SIP Total Thresholds), but could not draw any conclusion about the 1971-1975 trend.

Financial Chaos and the Resignation of Cuno

Abstract: Besides foreign policy problems, the Cuno cabinet had also inherited unsolved domestic problems from its predecessors. While reparations remained the single most important issue in foreign affairs, the cabinet slowly overcame its domestic paralysis during the summer of 1923 and endeavored to tackle the country’s major domestic problem — the adaptation of taxation to monetary inflation. The constant depreciation of the mark followed by a decline of its purchasing power had made the balancing of the budget more and more difficult during 1922. When the Reich’s budget for 1923 was discussed in the Ministry of Finance, it had become clear that growing inflation had made calculations of expenditures and revenues nearly impossible. The Ministry’s bureaucracy clearly recognized the effect of currency depreciation upon the Reich’s fiscal system. Indeed, this system was the result of Matthias Erzberger’s reforms in 1919 and had been developed under the precondition that the currency could be stabilized and that reparations would be adjusted to Germany’s capacity to pay.1 Nevertheless, the bureaucracy proved unwilling or unable to base taxation upon gold marks or any other stable standard of values.

Who Pays the Costs of Inflation

Abstract: Inflation may be looked upon as a deferred consumption tax which reduces consumer purchasing power through high prices to compensate for earlier excess expansions of credit. A portion of this excess borrowing is by government to finance deficits. The inflation cost may then be compared by family–income class with the alternative income taxes needed to avoid inflation by eliminating the deficits. By this calculation for 1965–75, the inflation cost was highly regressive, with an effective rate of 17 percent on. families below $5,000, and 17 times greater than such families would have had to pay in income taxes. Meantime, the effective inflationary tax rate for wealthy families over $50,000 in income was a bonus, or tax rebate, of one percent.