National Price Levels Research Articles

ANALISIS MEKANISME TRANSMISI KEBIJAKAN MONETER JALUR NILAI TUKAR DENGAN PENDEKATAN VECM PERIODE 2005:1-2012:12

This thesis discusses about analysis of transmission mechanism of monetary policy through exchange rate channel in Indonesia, during the period 2005:1 - 2012:12. By using variables such as PUAB Interest Rate, Exchange Rate, Total Export, National Income and Price lndex. The method's try to used in this thesis is a method of Vector Error Correction Models (VECM). This research aims to know the effectiveness of transmission mechanism of monetary policy through exchange rate channel within respect to see the influence of the operational targets (PUAB Interest Rate) to the intermediary target (Exchange Rate), as well as the final goals of monetary target (national income and price level). 
 The results of this research show the transmission mechanism of monetary policy through exchange rate channel path deserves to be researched further, it is based on the significant value of the t-test, f-test, and Adj R2. Meanwhile, the results of the analysis of the "Impulse Response" found that the influence of shock caused by PUAB Interest Rate will cause the depreciation of Exchange Rate and also increasing of total export, we can visible to see the direct mechanism from Interest Rate to Exchange Rate (monetary sector) and after that transmitted to the real sector through the Total Export. As seen from the analysis of Variance Decomposition can be stated that during the period 2005:1-2012:12, the National Income variance contribution donated by Total Export and Exchange Rate, While Price Level variance contribution rate donated by Exchange Rate and PUAB Interest Rate

Towards Money Market in General Equilibrium Framework

This paper aims to integrate the money market into the structure of the economy. The microfoundation is the starting point to define the money market and the general equilibrium mechanism of the economy. On this basis, this research seeks a linking mechanism of the money market with economic activity in the general equilibrium framework. The relationships between money supply and national outcome, inflation, and price level are studied in three cases: full-employment equilibrium economy, steady-state equilibrium economy, and sticky-price equilibrium economy. The research result explains the interrelation and transmission mechanism between the money market and the general equilibrium of the economy. The paper provides the theoretical foundation for further research on the money market and monetary policies towards economic growth and macroeconomic stability.

Is there a wage curve with regional real wages? An analysis for the US and Poland

This paper reassesses the wage curve applying regional price deflators, whereas in the literature only uniform national price levels are generally used in wage curve regressions. Existing estimates for the unemployment elasticities vary across countries but lie mostly in the neighborhood of −0.1. Using the data for the 49 US states over the 2008–2015 period and 16 Polish NUTS2 regions over the 2000–2015 period, we test the impact of regional prices on the wage curve employing a variety of approaches. We confirm the existence of wage curves for both countries. Following the theory of monopsonistic competition, this inverse relationship stems from the costs faced by both firms and workers. However, the elasticity of local unemployment and spatial spillovers decreases significantly if regional price deflators are applied. This is due to the fact that there exists a negative relationship between regional prices and unemployment.

The Balassa-Samuelson and the capital-intensity hypotheses in a nutshell

By means of duality theory, this paper generalizes the Balassa-Samuelson model as is used to explain the Penn effect; namely, the fact that national price levels tend to rise with per capita national incomes. The generalization made in this paper allows for any technological progress that is Hicks-neutral, Solow-neutral, Harrod-neutral, or any mixture of them. The implications of the enlarged models include, among others, the Balassa-Samuelson scenario, as well as a capital-intensity scenario that resembles Bhagwati’s. Those hypotheses emerge simultaneously when technical changes are, both, Hicksian and Solovian. The paper also presents an alternative model that is used to explain the apparent breakdown of the Penn effect in the case of the lowest-income countries.

Real Interest Rate and Exchange Rate Divergences within the EZ12: Evidence Based at Mean Group Estimators

Since nominal interest rate and nominal exchange rate are common for the Euro-zone (EZ) members, inflation differentials initiate real interest rate and real exchange rate divergences with further spill-over effects. The aim of the research is to investigate in which extent national price level, real interest rate and real exchange rate, co-move or diverge from supranational EZ variables. The research results, based on heterogeneous dynamic macro-panel data of 12 initial EZ members in the period 1999Q1-2019Q4, confirm heterogeneous adjustment, as well as the lack of balancing towards equilibrium, as a sign of EZ vulnerability.

International Real Estate Review

This paper examines why housing and services are more expensive in rich countries than in poor ones. We propose the Rich Neighborhood Housing Effect (RNHE), which explicitly allows for local labor force heterogeneity with a coherent supply- demand framework that incorporates demand-side factors such as the Linder effect. We also develop a contemporary RNHE model that predicts different behavior of the national price level between high-income and low-income countries. These predictions are confirmed by the panel data from 1990 to 2010 and simultaneous equation estimations. These results are compelling evidence in favor of the RNHE model over the Balassa-Samuelson model.

Analysis and prediction of college students’ consumption behavior

Campus data analysis is becoming increasingly important. In this work, based on the students’ consumption behavior in the canteen, we study the correlation between the students’ consumption expenditure and China’s national price level, as well as the relationship between the number of merchants to whom students make payments and students’ own economic conditions. Specifically, the students’ consumption expenditure increases with the price level, and the male consumption is significantly higher than that of the female; in addition, the better the students’ economic condition, the more canteen merchants that students choose. Finally, we propose a model for predicting the student consumption group, which can divide the students into high, moderate and low consumption groups. Experiment results show that the model can be used as an effective tool for predicting the consumption groups of students.

An empirical study on energy utilization efficiency, economic development, and sustainable management.

Based on the premise of sustainable development of the environment, how to achieve the balance of energy utilization, economic development, and sustainable management of the environment is becoming increasingly important in the process of stable economic development. This paper analyzes the concept of environmental Kuznets curve, taking 35 European countries as the research objects, first discusses the trend of energy utilization efficiency from 1990 to 2013, and then analyzes the relationship between energy efficiency and economic development. Empirical results show that labor has a significant negative impact on energy efficiency and the increase in labor input will reduce energy efficiency. If the added value of national manufacturing accounts for a higher percentage in GDP, it will have a negative impact on the effectiveness of energy utilization. In addition, when the national price level is high, price fluctuation will increase the price of energy utilization, or the cost of energy input in economic activities, which will further reduce the country's energy efficiency performance. Lastly, the empirical study also found that energy efficiency and economic development showed a quadratic U-shaped relationship, indicating that the long-term energy efficiency of the country will first decline and then rise during economic activities.

Natural Exchange Rate and Its Implications for the Purchasing Power Parity Puzzle

ABSTRACTThe notion of purchasing power parity has been an important building block in the theory of nominal and real exchange rates and for many theoretic models in international economics, leading to the purchasing power parity puzzle. The central issue of the puzzle is how to reconcile volatile short-term movements of real exchange rates (defined as nominal exchange rates adjusted for differences in national price levels) with very slow convergence to the parity condition. The main emphasis of this article is to show that the slow adjustment of the natural exchange rate is responsible for the well-known slow convergence of the real exchange rate to the long-run parity condition. The novel element of this article is to identify the relative importance between the financial channel and output gap channel of the purchasing power parity puzzle. The empirical findings of this article suggest that the financial channel is a dominant factor to explain persistent deviations of the real exchange rate from its long-run level.

The Balassa–Samuelson relationship: Services, manufacturing and product quality

The Balassa-Samuelson relationship, i.e. the positive relationship between a country's per capita income and its national price level, represents an apparent violation of Purchasing Power Parity (PPP) and is not expected to hold for manufactures according to the explanation of this relationship proposed by Balassa and Samuelson. This paper shows that at the level of the products used in constructing national price levels, the relationship is present in both ‘services’ and ‘manufactures’ and the specification of the relationship is different for the two. It further offers a new candidate explanation for the B-S relationship in manufactures, which is based on an appeal to product quality. This explanation yields a second, distinctive, testable prediction: controlling for per capita income, a non-monotonic relationship should exist between a country's income inequality and its national price level. The second prediction is shown to be consistent with empirical evidence. The explanation also implies that mismeasured quality exaggerates the B-S relationship and hence the observed cross-country income differences are likely to be underestimated.

Re-examination of price level differentials using economic freedom index

Findings reported in this paper provide improved explanation as to what factors are correlated with price levels across a large sample of 152 countries. The results are obtained from using a new set of variables called economic freedom indices, covering 19 years. Prior studies used income, trade openness, and productivity, which led to results with much less explanatory power compared to findings reported in this paper. We apply advanced panel data econometrics to obtain robust estimates of parameters, which, in our view, led to results with substantially high coefficient of variations close to 90%. The findings show that all the nine dimensions of economic freedom used in this study significantly account for the variations in national price levels.

What Determines Purchasing Power Parity Exchange Rates?

In an effort to provide a better understanding of the large variation in price levels between countries, we report on a cross-country analysis of national price levels, using Purchasing Power Parity (PPP) data on 168 economies from the most recent 2011 round of the International Comparison Program (ICP). PPPs are used for many purposes, including to set international poverty lines and allocate IMF quotas. The well-known Balassa-Samuelson income effect is not the only factor affecting PPPs, particularly for low- and middle income countries. Structural and policy factors make a difference. Small island states are relatively costly for their income level as are sparsely populated countries. Countries with large subsidy programs – as measured by fuel subsidies – tend to have lower price levels than predicted on the basis of income. More open labor policies – as measured by a higher share of migrants in the labor force – are associated with lower price levels in higher-income countries. The proposition that very poor governance is associated with both low income and high prices receives some modest support. Aid inflows and a negative current account balance are correlated with higher price levels (the latter less strongly), but FDI and remittances are not. We also observe a strong association between inequality and higher price levels, which provides some support for the proposition that the ICP may over-weight globally comparable goods. Our results confirm the tendency for African countries to be more expensive than countries with similar incomes in other parts of the world. We fail to fully explain this phenomenon but offer a number of explanations that together could account for it, including low agricultural productivity. Finally, we confirm the relationship between low PPP price levels and greater competitiveness in manufactures, especially for low and middle-income countries.

Nonlinear Dynamics of the Interaction of National Income, Interest Rate, and Price Level

We study the dynamics of a macroeconomic system formed by the interacting national income, interest rate, and price level. This dynamics can be described by a discrete system in the three-dimensional space. We study this system and show that there is a curve formed by fixed points that give equilibria on the market of money, commodities, and services. We prove that there exists a foliation transverse to the curve each layer of which is an integral manifold for the system. In the direction transverse to the layers, the dynamics changes from the equilibrium state to chaos. The paper contains both the theoretical results and the data of numerical experiments. We also consider perturbations of the system by small random uncontrolled actions simulating, in a natural way, the environmental influence on the system.

The response of macroeconomic aggregates to monetary policy shocks in Pakistan

Purpose – This paper aims to empirically examine how shocks to monetary policy measures (the short-term nominal interest rate and broad money supply) affect macroeconomic aggregates, namely, output growth of the economy, national price levels and the nominal exchange rate. Design/methodology/approach – Johansen’s (1995) cointegration technique and error correction models are used to explore the long-run relationship among variables. To investigate how macroeconomic aggregates respond to a one-standard deviation shock to the underlying monetary measures, the authors estimate impulse response functions based on error correction models. The study uses quarterly data covering the period 1980-2009. Findings – The results provide evidence that there is a long-run stable relationship between the authors' monetary measures and the underlying macroeconomic aggregates. They also find that the industrial production adjusts at a faster speed relative to commodity prices and the exchange rate over the examined period. Further, they show that the short-term interest rate has relatively stronger effects on output as compared to broad money supply, whereas prices and exchange rates adjust more quickly to their long-run equilibrium when money supply is used as a measure of monetary policy. Finally, the authors find significant evidence of a price puzzle regardless of whether they consider a closed or an open economy case. However, an initial appreciation of exchange rate is observed in response to a one-standard deviation shock to money supply, indicating the overshooting hypothesis phenomenon. Practical implications – The findings of the analysis suggest that the interest rate-oriented monetary policy is more effective when the monetary authorities’ objective is to enhance the output growth of the economy. However, in case of inflation targeting, the broad money supply seems a more appropriate instrument. Our findings also suggest that the monetary policy has a significant role in stabilizing both real and nominal sectors of the economy. Originality/value – The main value of this paper is to examine the significance of monetary policy for a developing and relatively small open economy, namely, Pakistan. The authors use the error correction model, which improves the estimation by accounting for the long-run association. They also take into account the world oil prices by including the world commodity price index as a control variable in their empirical investigation. Finally, they utilize quarterly data rather than annual, and they cover a relatively recent sample period.

RELATIVE PURCHASING POWER PARITY AND THE EUROPEAN MONETARY UNION: EVIDENCE FROM EASTERN EUROPE

ABSTRACT. This paper examine whether relative purchasing power parity holds for Albania, Bulgaria, Croatia, FYR Macedonia, Romania and Turkey versus Germany over the period January 1999 to May 2013. We investigate the real exchange rate by using a Dickey-Fuller test. Thereafter, we investigate the real exchange rate by allowing for a trend with the origin in the Balassa-Samuelson effect. We also investigate the same pairs using the Engle-Granger cointegration test. However, for the Engle-Granger cointegration test, four of the pairs are excluded as the nominal exchange rate and the price differential are not integrated by the same order. We have investigated the half-life of each pair in each of the three approaches. We find ambiguous results both regarding relative PPP and the speed of adjustment towards the PPP equilibrium. We use the results to investigate whether the Albanian, Bulgarian, Croatian, FYR Macedonian, Romanian and Turkish economies are synchronized with the German economy and if they are ready to enter the European Monetary Union.JEL Classification: E5, E31 F33Keywords: Consumer Price Index, Monetary Policy, Monetary System, Currency Union, EMU, Exchange Rates, Economic Indicators(ProQuest: ... denotes formulae omitted.)IntroductionThere is today a wide discussion in Europe concerning which countries to include in the European Monetary Union (EMU) and how these countries (and the EMU itself) will benefit from a membership. Schadler, Drummon, Kuijs, Murgasova and Elkan (2005) argue that, for countries adopting the Euro, the trade-off is between gain in trade and growth and increased volatility as a result of losing the exchange rate as a shock absorber. Further they conclude that for central European countries (CEC), an adoption of the Euro will hasten real convergence and will at most suffer a modest increase in volatility. The basic question comes down to: when and how to adopt the Euro (Schadler, Drummond, Kuijs, Murgasova, & Elkan, 2005).One deterministic factor for the loss of increased volatility is the optimum currency area (OCA) criteria. The OCA captures the sensitiveness of a country's economy to real shocks that are asymmetric to those in the currency union. The OCA therefore measures how often the Euro-area monetary policy is likely to be different from the monetary policy necessary for the potential incoming country. In other words, the OCA measures whether the economic cycles in the Euro-area and the economic cycles in the potential EMU-client are synchronized. The OCA criteria also focus on how well the potential client can adopt to shocks without their own monetary policy (Schadler, Drummond, Kuijs, Murgasova, & Elkan, 2005).This paper discusses relative purchasing power parity (PPP) in some of the countries in the Balkan area versus Germany, which is the largest economy in the EMU. Findings that suggest that PPP holds do not automatically suggest that OCA criteria are fulfilled and that the economies are synchronized. However, positive finding in regards of PPP implies that the real exchange rates share common trends and are driven by economic fundamentals. Thus, positive findings of PPP suggest that the analyzed country is suitable to adopt the euro regarding the terms discussed above (Caporale, Ciferri, & Girardi, 2008). The countries examined in this paper are Albania, Bulgaria, Croatia, FYR Macedonia, Romania and Turkey.Purchasing Power ParityPPP is the simple idea that arbitrage enforces national price levels to be equal after converted to the same currency (Rogoff, 1996). Rogoff (1996) writes that most economists believe that PPP is a long term anchor for real exchange rates; however, few take PPP seriously as a short term proposition. There are several variants of PPP.The Law of one PriceThe strictest version of PPP is the law of one price (LOP). The LOP states that after converting prices to one common currency, any good should have the same price across countries. …

The Rich Neighborhood Effect vs. The Balassa-Samuelson Theory: A General Theory of National Price Levels

As a standard explanation for national price levels, the Balassa-Samuelson (BS) model presupposes a homogeneous domestic labor force and intersectoral labor mobility. We propose a contrasting theory of the “rich neighborhood effect” (RNE). It is a more general theory because it explicitly allows for domestic labor force heterogeneity and because it is formulated as a coherent supply-demand framework that incorporates demand-side factors such as the Linder effect. We also develop a contemporary RNE model that predicts different behavior of the price level between high-income and low-income countries, which is confirmed by the empirical data. Specifically, we show that for high-income countries the unskilled proportion of the labor force has a significant negative impact on the price level over and above its indirect effects through income, which is not the case for low-income countries. These results are compelling evidence in favor of the RNE model over the BS model.

Explaining International Differences in the Prices of Tradables and Non-Tradables (with a New Zealand Perspective)

The World Bank‟s International Comparison Program (ICP) data on national price levels for tradables and non-tradables (and goods compared to services) reveals that New Zealand has relatively high prices of both tradables and non-tradables when compared to a sample of over 40 OECD-Eurostat countries (Gemmell, 2013). The present paper seeks to explain both those observed international variations in non-tradables and tradables prices in general, and New Zealand's especially high prices in particular.

A Note on the Real Currency Exchange Rate: Definitions and Implications

The real exchange rate (RER) in the literature is defined as the relative national price levels between two economies with the corresponding nominal exchange rate being an auxiliary to convert the unit of account such that two price levels are measured in a single currency. Its subject is not the currency or exchange rate, but the relative cost of living between two economies.This note proposes to define the real exchange rate of a currency as the nominal exchange rate adjusted for relative purchase power. It measures how much the currency can purchase in real terms, or the purchase power of the currency abroad relative to that at home. In this definition, the subject is the currency which serves as medium of exchange. It implies that its measure should be asymmetric; the price at home is broad like CPI, but the price abroad is only for imports. It is hypothesized that the RER with this medium-of-exchange feature is expected to be more relevant to exchange and hence the trade balance.

Grid parity analysis of solar photovoltaic systems in Europe

Photovoltaic (PV) power generation plays an important role in future sustainable energy mixes due to its high reliability, yield predictability and capacity for electricity production during peak demand when the electricity price is usually high. But still today, the economic viability of this technology depends on the subsidies usually granted by public authorities and electricity consumers. In the past, some subsidy schemes were inadequately generous, resulting in unsustainable PV growth rates that resulted in high public allowances. This study investigates the actual cost situation of the PV power generation for European countries, giving a perspective of the profitability until 2020 and identifies scenarios for which the technology can be financially self-sufficient without any subsidies. The study showed that the first grid parity was achieved in the Southern European countries. In Northern Europe, the PV cost-effectiveness depends highly on the national electricity price level and solar resources.

Medical Cost Impact of Intrathecal Drug Delivery for Noncancer Pain

As healthcare budgets continue to contract, there is increased payer scrutiny on the use of implantable intrathecal drug-infusion devices. This study utilizes claims data to evaluate the economic effects of intrathecal drug delivery (IDD) based on health services utilization and costs of care before and after implantation. We performed a retrospective database study involving 555 noncancer pain patients that received an IDD system implant within a 3-year service period (1/2006-1/2009). IDD patient costs were temporally aligned to implant month and repriced to a standardized, national pricing schedule over a 6-year episode cycle (3 years preimplant, implant month, and 3 years postimplant). Additionally, we made an actuarial projection of postimplant experience, in the absence of IDD intervention, simulating a conventional pain therapy (CPT) protocol by assuming the same slope in costs prior to implantation at standardized, national price levels. Cost projections were produced over a 30-year time horizon at various reimplantation rates. IDD therapy was less costly than the CPT protocol over our baseline implantation cycle. Costs in the month of IDD implantation, and in the year following, are cumulatively $17,317 more than the CPT protocol; however, IDD financial break-even occurs soon after the second year postimplant. The lifetime analysis indicates that IDD per patient per year savings is $3,111 compared with CPT. The authors found that patients receiving an implantable IDD system may experience reduced cumulative future medical costs relative to anticipated costs in the absence of receiving IDD. This finding complements published literature on the cost-effectiveness of IDD.