Purchasing power

About: Purchasing power is a research topic. Over the lifetime, 2714 publications have been published within this topic receiving 36866 citations. The topic is also known as: adjusted for inflation.

Exclusive Goods and Formal-Sector Employment

Abstract: We explore how the underemployment problem of less-developed economies is related to income inequality. Consumers have nonhomothetic preferences over differentiated products of formal-sector goods and thus inequality affects the composition of aggregate demand via the price-setting behavior of firms. We find that high inequality divides the formal sector into mass producers and exclusive producers (which serve only the rich); high inequality generates an equilibrium where many workers are crowded into the informal economy; and an increase in subsistence productivity raises the unskilled workers ' wages and boosts employment due to the higher purchasing power of poorer households. (JEL D31, D43, E24, E26, J24) old idea in economics holds that a more egalitarian income distribution may be beneficial for aggregate employment through its effect on the composition of consumer demand. High purchasing power in the hands of the lower classes generates large markets that foster industrialization and the emergence of a massconsumption society. In contrast, high inequality may generate a large reserve army of labor stuck in agriculture or marginalized in urban areas. As a result, high ex ante inequality in the distribution of productive resources can be an obstacle to economic development. In this paper, we present a dual economy model with a modern (formal) sector and a subsistence (informal) sector in which income inequality becomes a crucial determinant of modern-sector employment. We focus on a novel mechanism largely neglected by the previous literature: the impact of income inequality on prices and mark-ups set by modern firms. The basic idea is that an unequal income distribution may induce some firms to set high prices and mark-ups and sell their products exclusively to rich consumers. Other firms set low prices, making their product affordable to the poor. We will call the latter firms "mass producers" and the former

Food production vs. biomass export vs. land-use change: a cge analysis for argentina

Abstract: World trade in biomass is likely to increase in the years up to 2020 as imports are required to meet the demand created (directly or indirectly) by policy measures such as the EU Biofuels Directive. This paper assesses the macroeconomic consequences such large-scale trade for the exporting country, using a computable general equilibrium (CGE) model of Argentina. Given an exogenous increase in world prices for biomass, the model finds that production shifts towards biomass and away from other sectors. Implications of this include changes in the relative prices of goods and the purchasing power of labour. Price rises are largest in land-intensive sectors of the economy and the overall purchasing power of labour is adversely affected since biomass sectors are among the least labour intensive. When expansion of the agricultural area is permitted, relative price changes become less pronounced. However, expansion of the agricultural frontier may have adverse environmental impacts, including lowering the net GHG savings attributable to the biomass produced.

Output and Productivity Comparisons of the Wholesale and Retail Trade Sector: US and Australia, 1991 to 1999

Abstract: Australia’s value added contribution of the Wholesale and Retail trade has strengthened against sectors such as agriculture, mining and manufacturing At 1997-98 prices, its value added contribution to GDP during the 1990s was around 10-11% Agriculture was 3% and mining 7-8% Manufacturing’s value added contribution fell from 15% to 12% While performance at the domestic level may seem significant, there is still need to compare this performance with other countries Hence, this paper will examine the output and productivity performance of the Australian Wholesale and Retail Trade sector with the leading economy, the United States, from 1991 to 1999 The aim of the paper is two-fold First, the paper is a pioneer in a series which compares the performance of various industries within the service sector between the US and Australia Second, it introduces a method for derivation of appropriate currency converters or purchasing power parities (PPPs) for quantification of output and productivity at various disaggregated levels This method is based on the industry-of-origin approach as refined by the International Comparisons of Output and Productivity (ICOP) project based at the University of Groningen

The conquest of worldwide inflation: currency competition and its implications for interest rates and the yield curve

Abstract: In the United States and in virtually every country around the world, inflation has declined, and in most countries dramatically so. In addition, the volatility of inflation and expectations of future inflation have also fallen significantly. I will call these changes experienced around the globe the conquest of worldwide inflation. I will begin by providing a few facts about the substantial improvement of inflation during roughly the past decade compared with the quarter century that preceded it. I will then try to understand why this remarkable decline in inflation has taken place. In particular, I argue that globalization, deregulation, and financial innovation, in part spurred by experiences of high inflation in the 1980s, have fostered currency competition that has led to improved central bank performance and, hence, the recent conquest of worldwide inflation. Friedrich Hayek (1976) had long ago advocated permitting greater competition among currencies, arguing that there would be a race to the top rather than a race to the bottom. Regardless of what one might think of Hayek's policy proposals, technological change in a globalized and competitive marketplace, I believe, has increased competition among currencies issued by central banks. The increased competition among currencies has changed the ability and the incentives of governments and central banks to pursue high-inflation policies. As I will argue, such changes have allowed improvements in central bank independence, governance, and credibility, thereby leading to better inflation outcomes. In addition, greater central bank credibility has allowed the development of long-term bond markets in many countries where such markets did not previously exist and flattened yield curves around the globe as concerns about future inflation risks declined. Deeper bond markets with a wider range of available maturities encourage long-term planning and investment, and thus convey lasting gains, particularly in emerging markets. The important issue is whether the conquest of worldwide inflation will persist or be a temporary phenomenon. The Worldwide Decline in Inflation From the 1950s until the late 1960s, inflation rates were relatively contained, and episodes of high inflation were rare. Following the collapse of the Bretton Woods fixed exchange rate system in the early 1970s, however, inflation became a worldwide phenomenon. Even in Germany, where prices had been the most stable of any country in the world as tracked by the International Monetary Fund (IMF), the purchasing power of the deutsche mark declined by more than half between 1972 and 1995. (1) For the United States, purchasing power declined more than 70 percent over this period. For roughly half of all countries reporting to the IMF, the erosion of value of the currency was more than 90 percent. To express this erosion in terms of cumulative inflation, $370 would be required today in the United Sates to purchase $100 worth of goods and services at 1972 prices. Brazil has by far had the worst experience of any country in the world during this period: The price level in Brazil is approximately five trillion times higher today than it was in 1972. Since the early 1990s, however, worldwide inflation has significantly declined. In the advanced economies, for instance, the median inflation rate has fallen from 7 percent in the 1980s to 2 percent in the current decade. In emerging markets, the median inflation rate has fallen from 9 percent to 4 percent over the same period. Indeed, the latest issue of the International Monetary Fund's World Economic Outlook shows that average inflation rates in both the advanced economies and the developing countries in recent years are at their lowest levels since at least the early 1970s. (2) Indeed, the worst performers over the past five years have had inflation outcomes close to the average outcome in the 1970s. (3) Thus, the worst inflation today is not nearly as bad as it once was. …

The Dynamics of Food Insecurity in Ethiopia

Abstract: This paper assesses the dynamics of food insecurity in Ethiopia and tests policy options and scenarios that could alleviate the problem in the future. The study assess food security based on the pillars; food availability, access to food and stability. A System Dynamics model is designed which integrate population, market and food production sectors and is used to analyze past and future developments. Model results show that both the food supplies and the purchasing power of the population were insufficient for ensuring the required daily calorie intake of the population. Land degradation contributed considerably to the poor average productivity of the land. Policy analyses show that policy options such as land rehabilitation and capacity building for skilled use of agricultural land, and inputs need to be combined carefully to account for their different implementation times. Scenarios on average rainfall and food expenditure show that the food production and the purchasing power of the population are considerably influenced by erratic rainfall and economic growth respectively.