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.

Equilibrium Asset Prices and Investor Behavior in the Presence of Money Illusion: A Preference-Based Formulation

Abstract: This article analyzes the implications of money illusion for investor behavior and asset prices in a securities market economy with inflationary fluctuations Money illusion is modeled as an investor's partial overlooking the impact of inflation on the purchasing power of currency in his intertemporal decision making The impact of money illusion on security prices and their dynamics is demonstrated to be considerable even though its utility cost on investors is small in typical environments A money-illusioned investor's real consumption is shown to generally depend on the price level, and specifically to decrease in the price level for relative risk aversion higher than unity A general-equilibrium analysis in the presence of money illusion generates implications that are consistent with several empirical regularities In particular, the real bond yields and dividend price ratios are positively related to expected inflation, the real short rate is negatively correlated with realized inflation, and money illusion may induce predictability and excess volatility in stock returns The basic analysis is generalized to incorporate heterogeneous investors with differing degrees of illusion and to a monetary economy with endogenous inflation

Japanese-Chinese Import Trade Competition During The 1930s Crisis

Abstract: In the Indonesian historiography, the contest for market between the Chinese and indigenous traders has long attracted much scholarly attention, however this issue was actually only part of the story. This article seeks to elaborate the Japanese and Chinese import trade competition in Java during the 1930s depression. Drawing upon both primary and secondary historical materials, it is argued that instead of creating a time of hardships, the crisis paved the way for Japan’s import trade expansion. Benefiting from the creation of large market for cheap products among the customers in Java suffering from a decline in purchasing power and their owned trade networks, a great number of Japan products will soon controlle the market. The Chinese found that their well-established economic position was seriously threatened. Although Japan’s fast rising market domination was eventually removed, it was due to the changing of the socio-political environment that created major obstacles for the Japanese to maintain its position, rather than that of the responses of the Chinese traders. Keywords: 1930s crisis, Chinese traders, import trade, Japanese traders, Java

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.

Lessons From Italy: A Good Pension System Needs an Effective Broader Social Policy Framework

Abstract: Italy, which is sometimes considered a laggard in terms of social and economic reforms, can boast a pension system that is, by and large, functioning sufficiently well in terms of ensuring an adequate purchasing power to retirees and a financially sustainable outlook in the long term, even when taking into account adverse demographic developments.

The Most Basic Missing Instrument in Financial Markets: The Case for Bonds for Financial Security

Abstract: The move to defined contribution plans has transferred risk to individuals who are least capable of bearing such risk and requires them to make complex decisions for which they are not prepared. Accumulation (investments) and decumulation (annuity purchase) decisions are complex, costly, often with different entities (asset managers and insurance companies), result in illiquid investments (annuities), and still may result in highly uncertain pensions (because of interest-rate volatility). This paper argues that governments globally can address the shortcomings by issuing a new type of bond that matches the needs of investors saving for retirement. This financial instrument is basically an inflation-linked bond that pays coupons when you need it. We call these Bonds for Financial Security (BFFS) and argue that this single instrument can help investors achieve retirement objectives at lower risk, lower cost, and with greater liquidity and greater simplicity than portfolios created through a mix of traditional stocks and bonds followed by annuity purchases. The need for such a bond is simple to understand: A typical saver sets aside resources today to receive a stream of income post-retirement (for a fixed period) and the BFFS is the “riskless asset” because it guarantees the purchasing power post-retirement. The paper goes further to demonstrate that there is a potentially willing supplier of such bonds — governments that need to invest in infrastructure and have a desire to prevent a retirement crisis, thereby completing the market. The cash flows of such a bond are contrasted with those of infrastructure projects to show how such bonds may foster infrastructure financing. The paper also addresses challenges, issues, and opportunities surrounding such an instrument and examines issues relating to the creation of a market for BFFS.