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Purchasing Power Parity (purchasing + power_parity)
Selected AbstractsPURCHASING POWER PARITY IN LESS-DEVELOPED AND TRANSITION ECONOMIES: A REVIEW PAPERJOURNAL OF ECONOMIC SURVEYS, Issue 4 2009Mohsen Bahmani-Oskooee Abstract The concept of purchasing power parity (PPP) has been the subject of numerous studies, many of which have been unable to prove conclusively this core principle of international finance. Although industrialized countries have received most of the attention, studies that focus on less-developed and transition economies have also attained mixed results. This study surveys trends in this branch of the literature, highlighting the econometric advances that have sought to solve this puzzle, while pointing out that more needs to be done to address the reasons that might cause PPP not to hold. [source] Deviation from Purchasing Power Parity: Evidence from Malaysia, 1973,1997ASIAN ECONOMIC JOURNAL, Issue 1 2000Goh Soo Khoon This paper presents an empirical test of Purchasing Power Parity (PPP) applied to the Malaysia ringgit for the period from 1973 (CPI) and 1984 (WPI) to 1997. Consistent with other research findings, it is detected that real exchange rate follows a random walk. Using multivariate cointegration methodology for the long-run relationship between real exchange rate and certain macro-economic variables, the study provides evidence supporting a long-run relationship between the real exchange rate and the current account balance and government spending, the last two variables have been not included in previous studies of this economy. The causality test between real exchange rate with the current account balance and government spending, however, does not receive support from the error-correction model. This suggests that both government spending and current account balance are not adequate to explain the changes in ringgit real exchange rate. The puzzle still remains unsolved. [source] The hospital costs of care for stroke in nine European countriesHEALTH ECONOMICS, Issue S1 2008David Epstein Abstract Stroke is a major cause of mortality and morbidity, but the reasons for differences in costs of care within and between countries are not well understood. The HealthBASKET project used a vignette methodology to compare the mean costs and prices of hospital care across providers in nine European Union countries. Data on resource use, unit costs and prices of care for female stroke patients without co-morbidity were collected from a sample of 50 hospitals. Mean costs for each provider were analysed using multiple regression. Sensitivity analysis explored the effects on cost of using official exchange rates, purchasing power parity (PPP) and proportion of national income per capita. The mean cost of a hospital episode per patient for stroke at PPP was ,3813 (standard error 227) with an additional day in hospital typically associated with 6.9% (95% CI: 4,9%) higher costs and thrombolysis associated with 41% higher costs (10,73%). After adjusting for explanatory factors, about 76% of the variation in cost could be attributed to between-country differences, and the extent of this variation was sensitive to the method of currency conversion. There was considerable variation in the care pathways within and between countries, including differences in the availability of stroke units and access to rehabilitative services, but only the length of stay and use of thrombolytic therapy were significantly associated with higher cost. The vignette methodology appears feasible, but further research needs to consider access to healthcare over a longer follow up and to include both costs and outcomes. Copyright © 2008 John Wiley & Sons, Ltd. [source] Long-run purchasing power parity with asymmetric adjustment: evidence from nine major oil-exporting countriesINTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 3 2010Tsangyao Chang Abstract In this study, we apply threshold cointegration test advanced by Enders and Siklos (2001) to investigate the properties of asymmetric adjustment in long-run purchasing power parity (PPP) in nine major oil-exporting countries. Although there is evidence of long-run PPP for these nine oil-exporting countries, the adjustment mechanism is asymmetric. These results have important policy implications for these nine oil-exporting countries under study. Copyright © 2008 John Wiley & Sons, Ltd. [source] Real exchange rates may have nonlinear trendsINTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 2 2008David O. Cushman Abstract The unit root null is tested against possible nonlinear-trend stationarity for 13 US and German bilateral real exchange rates over the floating exchange rate period. Eight tests specified with nonlinear trends are applied. Simulations are used to determine individual and joint significance levels and to help interpret the results. Unit roots can be rejected for a number of the exchange rates, and nonlinear-trend stationarity appears more plausible than mean or linear-trend stationarity as the alternative. In several cases, estimates of the trends support the nonlinear-trend conclusion with statistical and economic significance. Thus, purchasing power parity is probably violated, but real exchange rates have meaningful long-run equilibrium values. Copyright © 2007 John Wiley & Sons, Ltd. [source] International real interest rate differentials, purchasing power parity and the behaviour of real exchange rates: the resolution of a conundrumINTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 1 2004Mark P. Taylor Abstract According to one strand of the international finance literature, market efficiency implies that the real exchange rate follows a martingale process, in direct conflict with the long-run absolute purchasing power parity hypothesis, which requires a stationary real exchange rate process. This conflict between market efficiency and long-run PPP appears as something of a conundrum. We resolve this conundrum by relaxing the assumption of a constant real interest rate differential and analysing the vector equilibrium correction system linking prices and the exchange rate, and draw out the economic intuition of our result. Copyright © 2004 John Wiley & Sons, Ltd. [source] Modelling & Controlling Monetary and Economic Identities with Constrained State Space ModelsINTERNATIONAL STATISTICAL REVIEW, Issue 2 2007Gurupdesh S. Pandher Summary The paper presents a method for modelling and controlling time series with identity structures. The approach is presented in the context of monetary targeting where the monetary identity (e.g. reserve money equals net foreign assets plus domestic credit) is modelled using a constrained state space model and next-period changes in domestic credit (policy variable) are estimated to reach the target level of reserve money. The constrained modelling ensures that aggregation and identity relations among items are dynamically satisfied during estimation, leading to more accurate forecasting and targeting. Applications to Germany, UK and USA show that the constrained state space model provides significant improvements in targeting and forecasting performance over the AR(1) benchmark and the unconstrained model. Reduction in the mean square error of targeting over AR(1) is in the range of 76,95% for the three countries while the gain in targeting efficiency over unconstrained modelling is between 21% and 55%. Beyond monetary targeting, the method has wide application to the dynamic modelling and control of economic and financial time series with identity and aggregation constraints (e.g. balance of payment, national income, purchasing power parity, company balance sheet). Résumé L'article présente une méthode de modélisation et de contrôle des séries temporelles avec des structures d'identité. L'approche est présentée dans le contexte de ciblage monétaire où l'identité monétaire (c. à d. monnaie de réserve égale avoirs étrangers plus crédit intérieur) est modélisée en utilisant un modèle spatial sous contrainte et où les variations du crédit intérieur à la période suivante (variable de politique) sont estimés pour atteindre le niveau visé de monnaie de réserve. La modélisation sous contrainte assure que les relations d'agrégation et d'identité entre items sont satisfaites en dynamique dans l'estimation, ce qui conduit à des prévisions et ciblages plus précis. L'application à l'Allemagne, le Royaume-Uni et les USA montrent que le modèle contraint apporte des améliorations importantes dans la performance de ciblage et de prévision par rapport à l'étalonnage auto-régressif (1) et au modèle sans contrainte. La réduction d'erreur du moindre carré par rapport à l'AR est comprise entre 76 et 95% pour les trois pays tandis que le gain en efficacité de ciblage sur le modèle sans contrainte se situe entre 21 et 55%. Par delà le ciblage monétaire, la méthode a une large application à la modélisation dynamique et au contrôle des séries temporelles économiques et financières avec des contraintes d'identité et d'agrégation (par ex. la balance des paiements, le revenu national, la parité de pouvoir d'achat, le bilan d'une compagnie). [source] Quantifying the uncertainty about the half-life of deviations from PPPJOURNAL OF APPLIED ECONOMETRICS, Issue 2 2002Lutz Kilian We propose a Bayesian framework in which the uncertainty about the half-life of deviations from purchasing power parity can be quantified. Based on the responses to a survey study, we propose a prior probability distribution for the half-life under the recent float intended to capture widely held views among economists. We derive the posterior probability distribution of the half-life under this consensus prior and confirm the presence of substantial uncertainty about the half-life. We provide for the first time a comprehensive formal evaluation of several nonnested hypotheses of economic interest, including Rogoff's (1996) claim that the half-life is contained in the range of 3 to 5 years. We find that no hypothesis receives strong support from the data. Copyright © 2002 John Wiley & Sons, Ltd. [source] PURCHASING POWER PARITY IN LESS-DEVELOPED AND TRANSITION ECONOMIES: A REVIEW PAPERJOURNAL OF ECONOMIC SURVEYS, Issue 4 2009Mohsen Bahmani-Oskooee Abstract The concept of purchasing power parity (PPP) has been the subject of numerous studies, many of which have been unable to prove conclusively this core principle of international finance. Although industrialized countries have received most of the attention, studies that focus on less-developed and transition economies have also attained mixed results. This study surveys trends in this branch of the literature, highlighting the econometric advances that have sought to solve this puzzle, while pointing out that more needs to be done to address the reasons that might cause PPP not to hold. [source] Explanatory Variables for per Capita Stocks and Flows of Copper and ZincJOURNAL OF INDUSTRIAL ECOLOGY, Issue 1-2 2006Claudia R. Binder A number of potential explanatory variables for the stocks and flows of copper and zinc in contemporary technological societies are co-analyzed with the tools of exploratory data analysis. A one-year analysis (circa 1994) is performed for 50 countries that comprise essentially all anthropogenic stocks and flows of the two metals. The results show that (1) The key explanatory variable for metal use is gross domestic product (GDP) per capita (purchasing power parity, PPP). By itself, GDP explains between one-third and one-half of the variance of per capita copper and zinc use. Other variables that were significantly correlated with copper and zinc use included stock of passenger cars and television sets (per 1, 000 people); two infrastructure variables, wired telephone connections, urban population, and value added inmanufacturing. The results do not provide evidence supporting the Kuznets curve hypothesis for these metals. (2) Metal use per capita can be estimated using multiple regression equations. For copper, the natural logarithm of use is related to the explanatory variables GDP (PPP), value added in manufacturing, and urban population. This model explains 80% of the variance among the different countries (r2= 0.79). The natural logarithm of zinc use is related to GDP (PPP) and value added in manufacturing with an r2 of 0.75; (3) For both metals, rates of metal fabrication, use, net addition to stock, and discard in low-and high-income countries differ significantly from each other. Our statistical analyses thus provide a basis for estimating the potential development of metal use, net addition to stock, and discard, using data on explanatory variables that are available at the international level. [source] Further Evidence on PPP Adjustment Speeds: the Case of Effective Real Exchange Rates and the EMS,OXFORD BULLETIN OF ECONOMICS & STATISTICS, Issue 4 2003Ivan Paya Abstract Two different approaches intend to resolve the ,puzzling' slow convergence to purchasing power parity (PPP) reported in the literature [see Rogoff (1996), Journal of Economic Literature, Vol. 34.] On the one hand, there are models that consider a non-linear adjustment of real exchange rate to PPP induced by transaction costs. Such costs imply the presence of a certain transaction band where adjustment is too costly to be undertaken. On the other hand, there are models that relax the ,classical' PPP assumption of constant equilibrium real exchange rates. A prominent theory put together by Balassa (1964, Journal of Political Economy, Vol. 72) and Samuelson (1964 Review of Economics and Statistics, Vol. 46), the BS effect, suggests that a non-constant real exchange rate equilibrium is induced by different productivity growth rates between countries. This paper reconciles those two approaches by considering an exponential smooth transition-in-deviation non-linear adjustment mechanism towards non-constant equilibrium real exchange rates within the EMS (European Monetary System) and effective rates. The equilibrium is proxied, in a theoretically appealing manner, using deterministic trends and the relative price of non-tradables to proxy for BS effects. The empirical results provide further support for the hypothesis that real exchange rates are well described by symmetric, nonlinear processes. Furthermore, the half-life of shocks in such models is found to be dramatically shorter than that obtained in linear models. [source] TRUE WORLD INCOME DISTRIBUTION, 1988 AND 1993: FIRST CALCULATION BASED ON HOUSEHOLD SURVEYS ALONETHE ECONOMIC JOURNAL, Issue 476 2002Branko Milanovic The paper derives world income or expenditure distribution of individuals for 1988 and 1993. It is the first paper to calculate world distribution for individuals based entirely on household surveys from 91 countries, and adjusted for differences in purchasing power parity between countries. Measured by the Gini index, inequality increased from 63 in 1988 to 66 in 1993. The increase was driven more by differences in mean incomes between countries than by inequalities within countries. The most important contributors were rising urban-rural differences in China, and slow growth of rural incomes in South Asia compared to several large developed economies. [source] The Role of Portfolio Shocks in a Structural Vector Autoregressive Model of the Australian Economy,THE ECONOMIC RECORD, Issue 264 2008RENÉE FRY Domestic and foreign equity shocks on the Australian economy are analysed within a five-variate structural vector autoregressive model, with identification achieved through long-run restrictions based on the natural rate hypothesis, monetary neutrality, long-run portfolio balance and purchasing power parity. The results show that real equity values were undervalued by 19 per cent by June 2005, with the gap narrowing thereafter. Foreign crises are important factors explaining this deterioration. The real wealth effects of equity market shocks impact significantly upon financial and goods market prices, whereas output tends to be immune. The model is also able to address puzzles that exist in the vector autoregression literature. [source] Looking for contagion in currency futures marketsTHE JOURNAL OF FUTURES MARKETS, Issue 10 2003Chu-Sheng Tai This article tests whether there are pure contagion effects in both conditional means and volatilities among British pound, Canadian dollar, Deutsche mark, and Swiss franc futures markets during the 1992 ERM crisis. A conditional version of international capital asset pricing model (ICAPM) in the absence of purchasing power parity (PPP) is used to control for economic fundamentals. The empirical results indicate that overall there are no mean spillovers among those futures markets, but they are detected during the crisis period. That is, past return shocks originating in any one of the four markets have no impact on the other three markets during the entire sample period, suggesting that these markets are weak-form efficient. However, this weak-form market efficiency fails to hold during the market turmoil, especially for British pound and Swiss franc, and the sources of contagion-in-mean effects are mainly due to the return shocks originating in three European currency futures markets. As for the contagion-in-volatility, it is detected for British pound only because its conditional volatility is influenced by the negative volatility shocks from Canadian dollar, Deutsche mark, and Swiss franc, with Deutsche mark playing the dominant role in generating these shocks. JEL Classifications: C32; F31; G12. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:957,988, 2003 [source] THE PURCHASING POWER PARITY PERSISTENCE PUZZLE: EVIDENCE FROM BLACK MARKET REAL EXCHANGE RATES,THE MANCHESTER SCHOOL, Issue 4 2008MARIO CERRATO In this paper we analyse the purchasing power parity (PPP) persistence puzzle using a unique data set of black market real exchange rates for 36 emerging market economies and (exact and approximate) median unbiased univariate and panel estimation methods. We construct bootstrap confidence intervals for the half-lives, as well as exact quantiles of the median function for different significance levels using Monte Carlo simulation. Even after accounting for a number of econometric issues, the PPP persistence puzzle is still a striking characteristic of the majority of emerging market countries. However, in a minority of exchange rates, the PPP puzzle is removed. [source] OPTIMAL AND ADAPTIVE SEMI-PARAMETRIC NARROWBAND AND BROADBAND AND MAXIMUM LIKELIHOOD ESTIMATION OF THE LONG-MEMORY PARAMETER FOR REAL EXCHANGE RATES,THE MANCHESTER SCHOOL, Issue 2 2005SAEED HERAVI The nature of the time series properties of real exchange rates remains a contentious issue primarily because of the implications for purchasing power parity. In particular are real exchange rates best characterized as stationary and non-persistent; nonstationary but non-persistent; or nonstationary and persistent? Most assessments of this issue use the I(0)/I(1) paradigm, which only allows the first and last of these options. In contrast, in the I(d) paradigm, d fractional, all three are possible, with the crucial parameter d determining the long-run properties of the process. This study includes estimation of d by three methods of semi-parametric estimation in the frequency domain, using both local and global (Fourier) frequency estimation, and maximum likelihood estimation of ARFIMA models in the time domain. We give a transparent assessment of the key selection parameters in each method, particularly estimation of the truncation parameters for the semi-parametric methods. Two other important developments are also included. We implement Tanaka's locally best invariant parametric tests based on maximum likelihood estimation of the long-memory parameter and include a recent extension of the Dickey,Fuller approach, referred to as fractional Dickey,Fuller (FD-F), to fractionally integrated series, which allows a much wider range of generating processes under the alternative hypothesis. With this more general approach, we find very little evidence of stationarity for 10 real exchange rates for developed countries and some very limited evidence of nonstationarity but non-persistence, and none of the FD-F tests leads to rejection of the null of a unit root. [source] Real Exchange Rate Behaviour under Fixed and Floating Exchange Rate RegimesTHE MANCHESTER SCHOOL, Issue 2 2002James R. Lothian In this paper we examine the stability of the real exchange rate and the macroeconomic effects of alternative exchange rate regimes, including currency union, on real exchange rate behaviour. We focus on the Irish punt in order to exploit its diversity of experience over different nominal exchange rate regimes. We make both temporal and cross-country comparisons of real exchange rate stability for the Irish punt with sterling, the US dollar and the German mark. We reach two conclusions on the basis of our results. The first is that for Ireland, as for most other countries, purchasing power parity provides a reasonably good description of actual exchange rate behaviour over the long run. Our second principal conclusion concerns regime effects. Currency union appears to matter. The real exchange rates we analyse are unambiguously less variable under currency union than under alternative exchange rate systems. Otherwise, however, we find no clear-cut differences in behaviour across regimes. [source] The Equilibrium Yen,Dollar Rate: 1976,91ASIAN ECONOMIC JOURNAL, Issue 1 2002Anthony De Carvalho This paper presents a definition of the equilibrium exchange rate that is based on a modified version of purchasing power parity (PPP) for traded goods. Employing constant elasticity of substitution (CES) production functions and data from 28 three-digit international standard industrial classification (ISIC) manufacturing industries, the equilibrium Yen-Dollar rate is calculated for the period between 1976 and 1991 (a time in which the Yen appreciated markedly against the Dollar) showing that the actual Yen-Dollar rate closely tracked the equilibrium rate over that time. The results suggest that strong growth in Japanese labor productivity, coupled with Japan's relatively low capital-labor elasticity of sub-stitution, were the main contributors to the Yen's long-run appreciation. [source] | |||||||||||||||||||||||||