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.

Guidelines, enthusiasms, uncertainty, and the limits to purchasing.

Abstract: Recently government ministers have set out their vision of the future of purchasing. Ineffective treatments will be discarded and purchasing will be based on guidelines or protocols rather than activity. But have the advocates of this approach considered all the issues? This paper examines the challenges of balancing the desire for protocol based uniformity with the needs of individual patients, explores the extent to which existing purchasing structures can support this process, and questions whether such moves will actually lead to reduced costs. In each case it is concluded that oversimplistic analyses are likely to be misleading and that much of the current debate fails to recognise the complexity of health care. A health service in which decisions are rational and based on evidence has obvious benefits. Some current treatments are ineffective and others that are effective are underused. Much effort is being devoted to developing clinical guidelines and protocols. Amid continuing disillusion with audit some politicians, managers, and health serviceresearchers see the purchasing process as the way forward. There have been several initiatives to increase the effectiveness of health care through the purchasing process, described in recent executive letters,1 2 3 including the “Effective Healthcare” bulletins, the “Outcomes Clearing House,” and the changing focus of the research and development programme. These seek to gather together the best available evidence. But it is less clear how this information should be translated into practice.4 This vision sees all interventions progressively being evaluated by randomised controlled trials and purchasers undertaking comprehensive assessments of need that will indicate which services should be purchased: locally adapted guidelines will be implemented by all providers; purchasers will buy not activity but guidelines or protocols5; change will come about through the “incredibly powerful lever of contracting”6; and Dr Mawhinney's seven steps …

The Differential‐Productivity Hypothesis and Purchasing‐Power Parties: Some New Evidence*

Abstract: The structure of prices of goods entering into international trade relative to those that do not plays a key role in the Balassa-Samuelson explanation of why countries ‘exchange rates differ systematically from their currencies’ purchasing power. the B-S analysis leads to the proposition that the tradable-nontradable price difference is lower for rich countries than for poor. This paper examines the gap, using prices collected by the International Comparison Programme. A variety of regressions were run to see if indeed the difference between tradable and nontradable price parities moved with income in the way B-S expected. They did.

The Collapse of Purchasing Power Parities During the 1970s

Abstract: This paper reviews and analyzes the empirical record of exchange rates and prices during the 1970's and the analysis is based on the experience of the Dollar/Pound, the Dollar/French Franc and the Dollar/DM exchange rates. Section 2 presents the evidence on PPP during the 1970's and contrasts it with the evidence from the 1920's -- a period during which the doctrine held up reasonably well. This analysis is relevant for assessing whether the flexible exchange rate system was successful in providing national economies with an added degree of insulation from foreign shocks, and whether it provided policymakers with an added instrument for the conduct of macroeconomic policy. The evidence regarding deviations from purchasing power parities is also relevant for determining whether there is a case for managed float. Section 3 attempts to explain what went wrong with the performance of the doctrine during the 1970's. It examines the hypothesis that the departures from PPP are a U.S. phenomenon, as well as the hypothesis that the departures are due to large changes in inter-sectoral relative price changes within the various economies. Given that the predictions of the simple versions of PPP do not hold up, section 4 proceeds in examining the question of whether national price levels have been independent of each other. Section 5 addresses the question of whether exchange rates and national price levels are comparable and whether in principle one should have expected them to be closely linked to each other. The main point that is being emphasized is that there is an important intrinsic difference between exchange rates and national price levels which stems from the basset market theory' of exchange rate determination. This theory implies that the exchange rate, like the prices of other assets, is much more sensitive to expectations concerning future events than national price levels and as a result, in periods which are dominated by news' which alter expectations, exchange rates are likely to be much more volatile than national price levels and departures from PPP are likely to be the rule rather than the exception. Finally, section 6 concludes the paper with some policy implications.

For Here or To Go? Purchasing Power Parity and the Big Mac 1

Abstract: The theory of Purchasing Power Parity (PPP) has a long and venerable tradition in international economics. Fundamentally, the theory states that prices of identical goods in different countries should be equal after adjusting for the rate of exchange between currencies. As a theoretical proposition, PPP serves as a solid foundation for thinking about the conditions under which prices in international markets adjust to attain long-term equilibrium. As an empirical matter, however, PPP has been a more elusive concept.2 The Economist has established another, though somewhat more recent, tradition: the Big Mac standard. Since 1986, The Economist has published yearly tongue-in-cheek comparisons of the prices of McDonald’s Big Mac sandwich in various countries around the world, evaluating prevailing exchange rates on the basis of these price differentials. A similar index has also been developed by the Union Bank of Switzerland in its annual comparison of prices and incomes around the globe. These lighthearted studies of international hamburger prices have predictably whet the appetites of the popular media and the financial press and have even given serious scholars food for thought.3 The attractive feature of the Big Mac as an indicator of PPP is its uniform composition. With few exceptions, the component ingredients of the Big Mac are the same everywhere around the globe. (See the shaded insert, “A Big Mac Is a Big Mac Is a Big Mac?”) For that reason, the Big Mac serves as a convenient market basket of goods with which the purchasing power of different currencies can be compared. Just as is the case with broader measures, however, the Big Mac standard fails to meet the demanding tests of PPP. In this article, we review the fundamental theory of PPP and describe some of the reasons why it might not be expected to hold as a practical matter. Throughout, we use the Big Mac data as an illustrative example. In the process, we also shed some light on the value of the Big Mac sandwich as a palatable measure of PPP.