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.

The Impact of Market Forces on Child Care Provision: Insights from the 2005 Child Care Act in the Netherlands

Abstract: This article examines the impact of the introduction of market forces on child care provision in the Netherlands. In January 2005, the Dutch government introduced the Child Care Act, replacing the former financing system, which had elements of both supply- and demand-financing, with a fully demand-financing system. As a result, the provision of child care is now driven by market forces. Using data on the geographical location of child care facilities, this article compares the factors affecting the provision of child care in the Netherlands before and after the introduction of the Child Care Act. The results suggest that after the regulatory reform the provision of child care has shifted towards wealthy urbanised areas, characterised by high demand and high purchasing power. This shift has largely benefited for-profit providers particularly active in these markets. In parallel, the results indicate an important drop in child care provision by non-profit organisations, most pronounced in less wealthy rural areas. These findings suggest that the introduction of demand-financing may have implications for the accessibility of child care.

The Evolution of Poverty during the Crisis in Indonesia, 1996–99

Abstract: The relative price of food increased considerably during Indonesia's recent economic crisis, so the explicit (or implicit) choice of the weight given to the inflation rate for food prices dramatically affects calculations of the poverty rate. Poverty is intrinsically a complex social construct, and even when it is narrowly defined by a deficit of consumption spending, many thorny issues arise in setting an appropriate poverty line. Suryahadi, Sumarto, Suharso, and Pritchett limit themselves to examining how poverty - defined on a consistent, welfare-comparable basis - changed in Indonesia during a series of crises that began in August 1997. Using various data sets and studies, they develop a consistent series on poverty's evolution from February 1996 to August 1999. Specifically, they study the appropriate method for comparing changes in poverty between the February 1996 and February 1999 Susenas surveys. To set a poverty line for 1999 that is conceptually comparable to that for 1996 involves a standard issue of price deflation: How much would it cost in 1999 to purchase a bundle of goods that would produce the same level of material welfare as the money spent at the poverty line in 1996? Empirically, given major changes in the relative prices of food, the key issue is the weight given food prices in the price index. Using different deflators produces a range of plausible estimates, but they produce two base cases: one working forward from 1996 and one working backward from 1999. If one accepts the official figure of 11.34 percent for February 1996, poverty increased from the immediate pre-crisis rate of about 7-8 percent in the second half of 1997 to the post-crisis rate of about 18-20 percent by September 1998 and 18.9 percent in February 1999. If one begins from the best estimate of the poverty rate in February 1999 (27.1 percent), poverty rose by 9.6 percentage points from 17.5 percent in February 1996. Since February 1999, poverty appears to have subsided considerably but - two years after the crisis started - is still substantially higher than it was immediately before the crisis. This paper - a product of the Environment and Social Development Sector Unit, East Asia and Pacific Region - is part of a larger effort in the region to develop a national poverty strategy for Indonesia. Lant Pritchett may be contacted at lant_pritchett@harvard.edu.

Power Sector Reform in Africa : Assessing Impact on Poor People

Abstract: The goal of this study is to examine the impact of power sector reform on poor people in Africa by tracing the relationship between this process and certain key factors that directly affect the poor, such as access to electricity, the affordability of electricity services, quality, and reliability of supply, access to such social services as electrified clinics and schools, economic development, and net impacts on public finances. The study examines power sector reform in six African countries - Ghana, Mali, Namibia, South Africa, Tanzania, and Uganda - using sector-wide data. Broad trends across the case study countries suggest that the impacts of power sector reform on the poor are neither direct nor inevitable. Although the introduction of private actors may actually result in price increases and not necessarily expand access to electricity, reform also provides opportunities that would not otherwise exist to improve quality and reliability, expand networks, and re-direct public resources more transparently to the poor and rural communities.

Crying wolf? On the price discrimination of online airline tickets

Abstract: Price discrimination refers to the practice of dynamically varying the prices of goods based on a customer's purchasing power and willingness to pay. In this paper, motivated by several anecdotal ac-counts, we report on a three-week experiment, conducted in search of price discrimination in airline tickets. Despite presenting the companies with multiple opportunities for discriminating us, and contrary to our expectations, we do not find any evidence for systematic price discrimi-nation. At the same time, we witness the highly volatile prices of certain airlines which make it hard to establish cause and effect. Finally, we provide alternative explanations for the observed price differences.

Can TIPS Help Identify Long-Term Inflation Expectations?

Abstract: Investors and policymakers have long hoped that Treasury Inflation Protected Securities (TIPS) would provide an accurate measure of long-term market inflation expectations. To make informed decisions and to ensure that inflation does not erode the purchasing power of their assets, investors need to assess the rate of inflation expected by other market participants. Having an accurate measure of market inflation expectations can also help policymakers assess their effectiveness in controlling long-term inflation, as well as their credibility among market participants. Until recently, however, the only sources of information about long-term inflation expectations were surveys and the term structure of interest rates, neither of which were considered highly reliable. With the introduction of TIPS in 1997, it was hoped that a new measure of market inflation expectations-the difference in yields between conventional Treasuries and TIPS-would become available. The yield difference between conventional Treasuries and TIPS may provide an accurate measure of market inflation expectations because inflation has very different effects on the returns to the two kinds of securities. The yield on a conventional Treasury must compensate the buyer for any expected erosion in purchasing power due to future inflation. In contrast, the buyer of an inflation protected Treasury need not worry about future inflation because the principal and interest payments are both indexed to inflation. As a result, the yield difference between conventional and inflation protected Treasuries of given maturity should reveal the rate of future inflation expected by market participants. Not everyone agrees, however, that the yield difference provides an accurate measure of expected inflation. Skeptics point out that the yield difference may depend on other factors, such as the liquidity difference between the two kinds of Treasuries, making it difficult to extract information about market inflation expectations. This article examines the empirical evidence on the behavior of the yield difference and the liquidity of the TIPS market. The article finds that the yield difference has not provided a good measure of market inflation expectations because of the large and variable liquidity premium on TIPS. Still, the yield difference may become a better measure of market inflation expectations as liquidity conditions in the two kinds of Treasury markets move closer in the future. The first section of the article explains why the yield difference between conventional Treasuries and TIPS might provide a good measure of market inflation expectations. The second section examines the actual behavior of the yield difference since TIPS were introduced and points out that the yield difference appears to be influenced by factors other than market inflation expectations. The third section investigates the role of market liquidity and concludes that the difference in liquidity between the two types of Treasuries has kept the yield difference from becoming a good measure of expected inflation. The fourth section suggests that the yield difference between conventional and inflation protected Treasuries may approximate market inflation expectations better in the future. I. WHAT ARE YIELD SPREADS AND MIGHT THEY TRACK MARKET INFLATION EXPECTATIONS? As TIPS are relatively new to many investors, this section briefly describes their main features. The section then examines the different components of the yield difference, or spread, between conventional and inflation protected Treasuries. The section shows that the expected rate of future inflation is the main component of the yield spread. The section also shows, however, that other components, such as the inflation risk premium and the liquidity premium may also be important, complicating the task of extracting information about market inflation expectations. What are TIPS? Since 1997, the U. …