Showing papers on "Purchasing power published in 1990"

Money Demand and the Stock Market in a General Equilibrium Model with Variable Velocity

Abstract: A monetary model of asset pricing is used to explain observed correlations between money velocity and stock prices. Output stocks cause velocity and nominal stock prices to move in opposite directions but may cause velocity and deflated stock prices to move in the same direction. Although monetary shocks are neutral, changes in monetary expectations have real effects because of their impact on the expected purchasing power of money balances carried into the future. Thus changes in expected monetary growth alter expected real equity returns and inflation, and changes in monetary uncertainty alter the equity risk premium.

The International Comparison Program: Current Status and Problems

Abstract: This paper reviews the International Comparison Program (ICP), a worldwide effort to produce international comparisons of real GDP and its components and purchasing power parities of currencies (PPPs). The robustness of results and future work are considered.A generous estimate of margins of uncertainty in the benchmark estimates might be 20-25 per cent for low-income countries and 7 per cent for high-income countries. The errors in extrapolations to countries not covered by the surveys could go as high as 30-35 per cent. That is still a small range of error compared to that stemming from the use of exchange rates to convert own-currency to common currency measures of output. Furthermore, exchange rate conversions are even more sensitive to methodology than PPP conversions. The notion that exchange comparisons rest on a simple and transparent procedure using standard market data is illusory. The future of ICP measures seems assured in Europe, particularly in the European Community. The prospects for systematic worldwide comparisons do not look as bright. A renewed effort by the United Nations Statistical Office and the World Bank would be needed to maintain an ICP with comprehensive coverage and comparable methods in all major regions.

Risk and Parity in Purchasing Power

Abstract: Deviations from purchasing power parity in efficient markets are often attributed to time-varying risk premiums. Some models have also identified the risk premiums to be the expected real interest rate differentials. This paper shows that risk premiums generally are not equal to ex ante real rate differentials. Empirically, the author finds risk premiums to be better than ex ante real rate differentials in accounting for deviations from purchasing power parity. In addition, both the risk premiums and the deviations from purchasing power parity respond proportionately to a single common factor. Copyright 1990 by Ohio State University Press.

The International Comparison Program: Current Status and Problems

Abstract: This paper reviews the International Comparison Program (ICP), a worldwide effort to produce international comparisons of real GDP and its components and purchasing power parities of currencies (PPPs). The robustness of results and future work are considered. A generous estimate of margins of uncertainty in the benchmark estimates might be 20-25 per cent for low-income countries and 7 per cent for high-income countries. The errors in extrapolations to countries not covered by the surveys could go as high as 30-35 per cent. That is still a small range of error compared to that stemming from the use of exchange rates to convert own-currency to common currency measures of output. Furthermore, exchange rate conversions are even more sensitive to methodology than PPP conversions. The notion that exchange comparisons rest on a simple and transparent procedure using standard market data is illusory. The future of ICP measures seems assured in Europe, particularly in the European Community. The prospects for systematic worldwide comparisons do not look as bright. A renewed effort by the United Nations Statistical Office and the World Bank would be needed to maintain an ICP with comprehensive coverage and comparable methods in all major regions.

The Measure of Value

Abstract: Hollander is undoubtedly correct when he says that in recent years there has emerged a remarkable consensus concerning Adam Smith’s measure of value. Smith’s labour command measure is seen as an index of purchasing power designed to measure welfare; and the relationships between labour commanded and labour embodied, given so much attention by earlier commentators on Smith, are dismissed as having played no significant part in his thought. Yet there is a striking contradiction between the conventional view, as expressed by Hollander, and Smith’s emphatic statement, quoted above, that the labour commanded (and labour embodied) value of a given commodity is not an index of its general purchasing power. In view of this, a reexamination of Smith’s measure of value seems warranted.

Income and Demand Policies in Brazil

Abstract: This chapter is divided into four main sections. In section 3.2 are presented three different ways to correct the continuous loss of purchasing power of wages in an inflationary environment. We concentrate our attention on the two mechanisms that have been used in Brazil: The ‘peak adjustment’ and the ‘average adjustment’. In the former case, wages are corrected, taking into consideration only past inflation. In the latter, future inflation must be forecast to permit the calculation of the nominal wage adjustment necessary to keep its purchasing power at the previous prevailing value. These different methodologies lead to completely different situations with respect to combating inflation, and are a key step in understanding the inflationary process in Brazil. The ‘peak adjustment’ is generally referred to in the literature as lagged (backward-looking) indexation. The ‘average adjustment’ is better defined as an incomes policy than as a method of indexing wages. It also is referred to as ‘forward-looking indexation’.

Money, method, and the market process - essays.

Abstract: Method.- 1. Social Science and Natural Science.- 2. The Treatment of "Irrationality" in the Social Sciences.- 3. Epistemological Relativism in the Sciences of Human Action.- Money.- 4. The Position of Money among Economic Goods.- 5. The Non-Neutrality of Money.- 6. The Suitability of Methods of Ascertaining Changes in Purchasing Power for the Guidance of International Currency and Banking Policy.- 7. The Great German Inflation.- 8. Senior's Lectures on Monetary Problems.- Trade.- 9. The Disintegration of the International Division of Labor.- 10. Autarky and its Consequences.- 11. Economic Nationalism and Peaceful Economic Cooperation.- 12. The Plight of the Underdeveloped Nations.- Comparative Economic Systems.- 13. Capitalism versus Socialism.- 14. On Equality and Inequality.- 15. The Clash of Group Interests.- 16. A Hundred Years of Marxian Socialism.- 17. Observations on the Russian Reform Movement.- 18. Observations on the Cooperative Movement.- 19. Some Observations on Current Economic Methods and Policies.- Ideas.- 20. The Role of Doctrines in Human History.- 21. The Idea of Liberty is Western.

A test of purchasing power parity: Texas Border retail trade and the value of the Peso 1976–1987

Abstract: The peso devaluations of 1982-1983 caused a severe disruption in the Texas economy along the Texas-Mexico border. The proximate cause of these devaluations was the disparity between the inflation rates in the United States and Mexico. This disparity was accompanied by capital flight from Mexico as Mexican citizens attempted to protect the purchasing power of their financial assets. Another result of this disparity was boom conditions in the retail trade sector along the Texas side of the border. The Texas border region developed a thriving trade sector economy. Thus, the precipitous fall in the international purchasing power of the peso resulted in widespread business failure and unemployment. The collapse of the trade sector added to the relative poverty of the border region of Texas. This region has traditionally led the balance of the state in unemployment and lagged behind the state in income. There is very little industrial development in this region, and existing industry was unable to expand to alleviate the additional economic hardship that occurred in the aftermath of the peso devaluations.

Senior citizens: A burden?

Abstract: Some people have serious worries about the effects of an aging population in The Netherlands. In this article, attention is directed towards a number of positive effects, like their rather high purchasing power, their low criminality rate, low rate of traffic accidents,etc. If one takes account of the expected rise in incomes of the elderly, the influence of aging on a country's economy will generally be positive. Income expenditure will be focussed on travel and housing. Promoting the immigration of elderly people may bring about a reinforcement of a regional economy.

Britain's Return to Gold and Entry into the EMS: Expectations, Joining Conditions and Credibility

Abstract: In this paper the surprising conclusion of Smith and Smith (1990) that the prospect of Britain's return to gold in 1925 had the effect of weakening sterling is subjected to critical analysis. It is shown that this conclusion is reversed when the trend in the UK money stock prior to joining the gold standard is treated as endogenous; and when non-stationary solutions are considered. It is further suggested that a more realistic interpretation of events must involve the use of a model with price inertia. The final section of the paper considers the major difference between the United Kingdom's return to gold and its entry into the EMS, namely, the current lack of credibility attached to an exchange rate peg for sterling.

International Labour Costs in Manufacturing, 1960-88:

Abstract: Comparative labour costs in the manufacturing paid bonuses and premia. Payments for annual industries have been analysed in four previous leave, public holidays and other paid individual issues of this flew'ew01 based on surveys of labour absences are included insofar as the corresponding costs published by the Swedish Employers' Confeddays or hours are also taken into account to calculate eration(2>. These contain time series of wages for time earnings per unit of time. Total labour costs consist of worked, social charges and total labour costs in hourly earnings as defined above; pay for time not manufacturing for most OECD countries and convert worked (such as, vacations, public holidays); pay them into a common currency. Although no ments in kind and other cash payments; employers' allowance is made for the different purchasing power social security expenditure of any type; cost of of the wages paid ('PPPs') the comparison is useful vocational training and of welfare services; taxes of since the products of the industries of various counsocial nature or otherwise regarded as labour cost tries compete on international markets on the basis (for example, in Italy and Sweden); and all other of current exchange rates. labour costs not classified elsewhere. Social charges The latest Swedish survey makes it possible to are calculated as the difference between total labour extend the analysis to three decades. This note starts costs and hourly earnings (both as defined above); with the definition of the data used, continues with the they are expressed in this note as a percentage of the comparison of labour costs in recent years and then latter. surveys the developments in the almost thirty years Both hourly earnings and total labour costs have from 1960 to 1988. been converted from national currencies to Swedish

A Theoretical and Empirical Analysis of Index Number Formulae for Multinational Purchasing Power and Product Comparisons

Abstract: Publisher Summary This chapter discusses a theoretical and empirical analysis of index number formulae for multinational purchasing power and product comparisons. Purchasing power parity (PPP) is defined as the number of currency units required to buy goods equivalent to what can be bought with one unit of the currency of a base country. Real product comparisons among countries can be obtained by dividing the PPP into the corresponding national currency expenditure. Several indices that possess desirable properties for multinational comparisons of purchasing power and real products are analyzed in this chapter. The three indices in most common use—the Gerardi, which was utilized by the European Economic community; the Geary–Khamis, utilized by the International Comparisons Project (ICP) of the United Nations; and the Walsh, utilized by ECIEL—are described in the chapter. To achieve additive consistency, the Gerardi and Geary–Khamis indices utilize a Laspeyres formulation weighting of relative prices by expenditure shares in the reference country. The use of these weights, however, seems to impart an upward bias on the real product comparisons for developing countries.

Extrapolations of Purchasing Power Parities

Abstract: Publisher Summary This chapter presents the results of various experiments in extrapolating purchasing power parities to help define a procedure for obtaining annual estimates of the products of the Latin American countries expressed in a common currency. The results make it possible to compare—for each country and for the countries as a whole—the extrapolations made globally with those made by aggregating the components; in addition, they make it possible to compare the quality of the results obtained with different indices and country bases. The experiments made with the data for the period 1968–1973 show that the extrapolations made globally are better and that among various acceptable methods, the most accurate extrapolations are obtained by using a procedure based on the consumer price index and on the correction of the systematic discrepancies of some countries.

Comparisons of Purchasing Power and Real Income in Latin America: A Review of Methods

Abstract: Publisher Summary This chapter discusses presents some studies comparing purchasing power and real income in Latin America. Although they present some deficiencies, the national accounts of Latin America meet the requirements of the former United Nations system, and make comparative studies of purchasing power and real products possible. A study described in the chapter adopted the comparison of the GDP on the expenditure side rather than on the production side. The final market prices at the purchaser's level are compiled from representative selection of private consumption goods and services in the various Latin American countries. It is not possible to cover all private consumption items, and therefore, a representative sample—approximately 250 products in 1979—was selected. This selection takes into account the composition of the expenditures and the importance of each group of products in the various participating countries, and ease of specifying the products and obtaining the prices.

Comparing Real Output, Purchasing Power and Labour Productivity: A Case Study for Argentina and the United States, 1973–1985

Abstract: Publisher Summary This chapter presents a study involving Argentina and the United States that compares real output, purchasing power, and labor productivity for the period 1973–1985 This study was concerned with the measurement of relative labor productivity in manufacturing in Argentina and the United States with the implications of relative productivity levels for the competitive position of Argentina The main sources for comparative purposes were the production censuses of the two countries These sources covered a large part of total manufacturing output All data were based on one single source Data for the United States were taken from the 1977 Census of Manufactures For Argentina, the basic source was the Censo Nacional Economico 1974, which showed data for 1973 This census followed the United Nations International Standard Industrial Classification quite closely

Epidemiology and Economy, and the Appraisal of Human Life: Ethical and Practical Limitations of how to Value Health Benefits

Abstract: Money is considered to be a hard value, but this is not so with life! According to our ethical codex, the value of life is expected to be equally high under all circumstances. Nevertheless, money is different insofar as purchasing power and even the exchange rates vary almost from day to day.

Inflation Adjustments to Income in Entry and Exit Price Systems

Abstract: There are different views on the way in which price level adjustments might be made in the income account. Pratt (1988) noted that adjustments might be made in respect of individual assets or as a single adjustment to the opening capital. Multiple adjustments are commonly believed to be necessary when monetary assets are separated from non-monetary assets. An hypothesis is presented here that may explain why accounting theorists have believed (erroneously) that inflation affects monetary items differently from non-monetary items. Some complexities are considered and questions raised about the appropriateness of definitions of purchasing power and wealth.

The International Comparisons of Output and Productivity (ICOP) Project: A Progress Report

Abstract: Publisher Summary This chapter presents a progress report of the international comparisons of output and productivity (ICOP) project. The ICOP project is a cooperative research program that aims at systematic development of an industry-of-origin approach to international comparison of levels of real output, productivity, and real purchasing power of currencies. It is complementary to the International Comparisons Project (ICP) approach of Eurostat/United Nations, which takes the same sort of problems from the expenditure side of the national accounts. The investigations have covered agriculture (14 countries), mining (14 countries), and 15 branches of manufacturing (10 countries). There are plans to embark on measures of real service output, productivity, and purchasing power parity. The core countries are Argentina, Brazil, France, Germany, India, Japan, Mexico, the Netherlands, South Korea, UK, and the United States. The chapter summarizes some of the main findings about comparative productivity performance and PPPs.

Treatment of Price Changes

Abstract: We give attention to the question of how to deal with changes in price level because it is a much misunderstood and confusing issue. First, we demonstrate the need to adjust for changes in the purchasing power of the dollar.1 Next, we show how to measure changes in the price of a good or service in current dollars and in constant dollars. Finally, we describe two valid approaches for dealing with inflation in an economic evaluation: (1) working in current dollars and removing inflation as part of the discounting operation and (2) working in constant dollars and excluding inflation at the outset.

Agricultural Output and Productivity of Labour and Land in Latin America

Abstract: Publisher Summary This chapter focuses on the agricultural output and productivity of labor and land in Latin America. Comparisons of agricultural sector value aggregates are of considerable interest and importance among Latin American countries. Rapid but differential rates of structural adjustments in favor of industrialization, particularly with respect to the development of an export-oriented mining sector, have provided wide variations in levels of economic development among the countries of the region. The differentiated pace of structural adjustments across countries may have been a result of movements in the relative price of agricultural and industrial output. The International Comparisons Project (ICP) work tends to show that the purchasing power of currencies of less-developed agricultural producers is probably significantly undervalued when official exchange rates are used as the basis of intercountry comparisons. This chapter employs ICP and Food and Agriculture Organization measures of the general price level for different agricultural and GDP based commodity groups to shed some light on agricultural price policy and exchange rate issues.

Clientage and Crisis, 1979–85

Abstract: Throughout the period under review, state and market activities, defined in a strict sense (Chapter 6), were disintegrating. Parastatal and government agents were increasingly involved in clientage practices. The state controlled market was progressively less able to service the population’s basic needs. As indices of real wages (see Table 12.3), real producer prices, and food and non-food costs of living (see Table 14.1) show, by the late 1970s the standard of living affordable through official labour and commodity markets had deteriorated drastically. The real minimum wage in 1983 was at the same level as 1939, but now it was supposed to cover the needs of an urban nuclear family in contrast to the bachelor wages of pre-World War II (see Table 12.3). Urban residents and peasants lacked purchasing power and availability of essential goods — food being the most essential. Food insecurity was acute and, most significantly, experienced by virtually all sections of the population. Urban residents as well as rural dwellers faced uncertainty of supply and found a major portion of their income and working time devoted to food procurement. Findings of a 1980 Dar es Salaam household budget survey revealed that 85 per cent of expenditure in low income households was for food.1

A game theoretical approach to income policies

Abstract: This study analyzes the use of a temporary incomes policy to combat an inflation driven by inflationary expectations. These policies typically specify wage controls which fail to provide full compensation for the expected inflation and this, in turn, gives rise to various forms of non-compliance by senior workers. These workers attempt to either preserve their purchasing power in face of controls or to force the suspension of the controls themselves. The study indicates the circumstances under which the government is forced to abandon wage controls in favor of a tight money policy designed to combat the posited inflation. The problem is treated as a dynamic Nash equilibrium game.

The Challenge of 1992 Europe

Abstract: When the single market of Europe 1992 is in place, the EC will rank next to the U. S. in purchasing power and will represent one of the two largest markets in the world. With the realization of the proposed monetary union, the parallel will become even more striking.

The use of Regression Methods in International Comparisons

Abstract: Publisher Summary This chapter presents the use of regression methods in the international comparison project of the level and structure of prices in the Latin American Free Trade Association. The chapter presents a study that was undertaken by a group of research institutes from the countries involved, coordinated by professional staff from ECIEL. Regression methods have been used to compare the prices of durable consumer goods, or producer durables, and housing services. One of the early projects undertaken by ECIEL was an international price comparison among the Latin American countries. The purpose of the study described in the chapter was to compare prices, purchasing power of currencies, and gross domestic products among these countries. Common and comprehensive sets of consumption, investment, and public sector goods were classified, and a price survey for all those sectors was undertaken in each country. The expenditure patterns for the corresponding goods were also determined. From these standardized prices and expenditure estimates, several indexes were calculated for the intercountry comparison. The expenditure sectors considered for the survey were private consumption, public consumption and investment.