Parity Exchange Rates Research Articles

Global Poverty Estimates: Present and Future

We review the recent empirical literature on global poverty, focusing on key methodological aspects. These include the choice of welfare indicator, poverty line and purchasing power parity exchange rates, equivalence scales, data sources, and estimation methods. We also discuss the importance of the intra-household resource allocation process in determining within-household inequalities and potentially influencing poverty estimates. Based on a sensitivity analysis of global poverty estimates to different methodological approaches, we show that existing figures vary markedly with the choice of data source for mean income or consumption used to scale relative distributions; and with the statistical method used to estimate income distributions from tabulated data.

Revisiting the Real Exchange Rate Parity: The Role of Stock Market Information

In this paper we propose to augment the traditional relationship between real exchange rates and real interest rates (RERI) by adding the stock market equilibrium condition to it. We introduce the relative dividend yield as the new information variable. In the empirical analysis we use recent monthly observations from the U.K., Japan, Canada and Eurozone, all relative to the U.S. We show that the introduction of stock market information is highly relevant for the functioning of the RERI hypothesis. Based on the results from the cointegration analysis the role of relative stock market performance is especially important in the short-term (3 month) horizon, where the augmented RERI representation is most strongly supported.

Estimating Global Poverty; Towards a Unified Approach

In this article we discuss the compatibility of different global poverty estimates under a unified framework. We examine the updating of the rules of the international poverty lines under different Purchasing Power Parity exchange rate estimates and discuss the way this process has affected the latest World Bank poverty-line updates. The issue of the lack of comparability of the data of survey means and national accounts is also discussed, and it is argued that positions based on using one set of data as the indicator of average well-being, to the exclusion of the other, are problematic. We put forward an alternative approach, to deal with the inconsistency between the two data sources, which consists of calibrating the survey means, using the national-accounts data as external calibrating information. We show that combining the information in both sets of data in this way produces poverty measures which are more in congruence with other indicators of national poverty.

Nominal Prices, Real Prices and Faux Prices: The Perils of Comparing Individual Prices at Purchasing Power Parity Exchange Rates

When comparing the price of an individual good or service across different countries, it is necessary to use to a common metric. In reporting the prices of telecommunications services, the OECD converts prices into U.S. dollars using the Purchasing Power Parity (PPP) exchange rate, which takes into account how generally expensive a country is relative to the United States. This note explores the relative merits of making this type of conversion when comparing prices across countries. It argues that PPP price comparisons address a very narrow set of questions, whose implications for economic behavior and policy are quite limited. It also suggests that the most important questions for telecommunications policy are better addressed with different measures, and in such instances, the use of PPP can be misleading and counterproductive. In particular, price comparisons based on PPP conversion are unreliable indictors of consumer demand. If the PPP price of good is lower in one country than another, and this difference is due primarily to a high PPP exchange rate, then there is little reason to believe that the good will be consumed more in that country. In the case of broadband Internet, the effect of the PPP price is shown to have no causal effect on broadband penetration rates across OECD countries. A simple alternative to PPP conversion is the ratio of price to per capita income. This measure is quite easy to construct, requires no information on exchange rates, and is generally an improvement over the PPP price as a predictor of demand. Moreover, this measure has theoretical justification and provides a consistent measure of affordability.

The Balassa–Samuelson model of purchasing power parity and Chinese exchange rates

Our principal purpose here is to assess the extent to which both the official and black market exchange rates for the Chinese economy exhibit compatibility with the Balassa–Samuelson model over the period from 1985 to 2006. We employ annual measures of inflation and industry input on an aggregated, disaggregated and sector basis, all of which have been especially constructed for this study. Both the time series and panel cointegration tests applied to this data are generally inconsistent with the prediction of the Balassa–Samuelson model that the tradable goods sector is compatible with purchasing power parity. However, our analysis also shows that other predictions of the Balassa–Samuelson model – most notably that there will be a strong long-run relationship between the real exchange rate and the relative productivity differential between China and the U.S. – does hold up for the Chinese economy. Moreover, the black market exchange rate appears to be more consistent with the predictions of the Balassa–Samuelson model than the official exchange rate.

PPP EXCHANGE RATE RULES, MACROECONOMIC (IN)STABILITY, AND LEARNING

In order to maintain competitiveness, governments in developing economies seem to have pursued purchasing power parity (PPP) exchange rate rules, by adjusting the nominal devaluation rate in response to real exchange rate deviations from an intermediate target. This article shows that these rules are likely to induce macroeconomic instability, as they generate sunspot-driven fluctuations that are in fact learnable by agents in the Expectational-Stability sense. It finds that the existence of these “learnable sunspots” depends, among others, on open economy features, including the degree of openness and the degree of exchange rate pass-through to consumer's import prices.

Proyección de la tasa de cambio de colombia bajo condiciones de ppa: evidencia empírica usando var1,2

This document examines exchange rate forecasts during the 1995-2005 period, using a Purchasing Power of Parity Exchange Rate Model (PPPER). Our first finding is that the computed forecasts seem to validate the use of this model under certain conditions given that it performs well in predicting the behavior of the nominal exchange rate. Our second finding included a comparative analysis of out-of-sample forecasts (saving historical data) between the PPP-based forecast models and the Vector Autoregressive (VAR) model. The VAR has a better forecasting performance based on the RMSE, MAE, and U-Theil indicators. MAPE results measured on the first and second month-ahead forecasts indicate that the VAR model performs more poorly than the PPP-based models.

Climate change scenarios and long term projections

Predictions of future temperature increases depend critically on the projections of future greenhouse gas emissions. Yet there is a vigorous debate about how these projections should be undertaken. This paper explores a range of methodological issues surrounding projecting greenhouse emissions over the next century. It points out that understanding future emissions requires a framework that deals with the sources of economic growth and allows for endogenous structural change. It also explores the role of convergence assumptions and the “Castles and Henderson Critique” of the Special Report on Emission Scenarios (SRES) regarding use of Market Exchange Rates (MERs) rather than Purchasing Power Parity exchange rates (PPPs) to benchmark income differentials in the world economy. In the G-Cubed multi-country model, we show that emission projections based on convergence assumptions defined in MER terms, are 40% higher by 2100 than emissions generated using a PPP comparison of income differentials between economies. We support the argument presented by Castles and Henderson, that the use of MERs in the SRES represents a serious analytical error. It is not clear what this means for the SRES projections because the SRES is not transparent in its assumptions. In the G-Cubed model, the error leads to considerably higher emissions projections.

Agricultural productivity and rural incomes in England and the Yangtze Delta, c.1620–c.18201

The productivity of agriculture in England and the Yangtze Delta are compared c.1620 and c.1820 in order to gauge the performance of the most advanced part of China vis‐à‐vis its counterpart in Europe. The value of real output is compared using purchasing power parity exchange rates. Output per hectare was nine times greater in the Yangtze Delta than in England. More surprisingly, output per day worked was about 90 per cent of the English performance. This put Yangtze farmers slightly behind English and Dutch farmers c.1820, but ahead of most other farmers in Europe—an impressive achievement. There was little change in Yangtze agricultural productivity between 1620 and 1820. In 1820, the real income of a Yangtze peasant family was also about the same as that of an English agricultural labourer. All was not rosy in the Yangtze, however, for incomes there were on a downward trajectory. Agriculture income per family declined between 1620 and 1820, even though income per day worked changed little since population growth led to smaller farms and fewer days worked per year. The real earnings of women in textile production also declined, since the relative price of cotton cloth dropped—possibly also because a larger population led to greater production. The implication is that the Yangtze family, unlike the English family, had a considerably higher real income c.1620, and that period was the Delta's golden age.

Forecasting Foreign Exchange Rate in Colombia Assuming PPP Conditions: Empirical Evidence Using VAR (in Spanish)

In this paper we evaluate a set of colombian exchange rate forecasts during the 1995-2005 period, using a Purchasing Power of Parity Exchange Rate Model (PPPER). Our first finding is that the computed forecasts seem to validate the use of this model under certain conditions given that, theoretically, it does a good work in predicting the long-term behaviour of the nominal exchange rate. Our second finding included a comparison analysis of out-of-sample forecasts (saving the 2001-2005 historical data) between the PPP-based forecast models, and the Vector Autorregresive (VAR) ones. The VAR method has a better forecasting performance, according to the RMSE, MAE and U-Theil measures. However, MAPE results measured on the first and second month-ahead forecasts, indicate that the VAR model has the worst performance amongst PPP-based models.

P.285 Jacob's disease – own experience

The burden of acute gastrointestinal infections (AGIs) on the society has not been well studied in Central European countries, which prevents the implementation of effective, targeted public health interventions.We investigated patients of 11 randomly selected general practices and 8 hospital units. Each patient meeting the international AGI case definition criteria was interviewed on costs incurred related to the use of health care resources. Follow-up interview with consenting patients was conducted 2 to 4 weeks after the general practitioner (GP) visit or discharge from hospital, collecting information on self-medication costs and indirect costs. Costs were recalculated to US dollars by using the purchasing power parity exchange rate for Poland.Weighting the inpatient costs by age-specific probability of hospital referral by GPs, the societal cost of a medically attended AGI case was estimated to be US $168. The main cost drivers of direct medical costs were cost of hospital bed days (US $28), cost of outpatient pharmacotherapy (US $20), and cost of GP consultation (US $10). Patients covered only the cost of outpatient pharmacotherapy. Considering the AGI population GP consultation rate, the age-adjusted societal cost of medically attended AGI episodes was estimated at US $2222 million, of which 53% was attributable to indirect costs.Even though AGIs generate a low cost for individuals, they place a high burden on the society, attributed mostly to indirect costs. Higher resources could be allocated to the prevention and control of AGIs.

Transitional appreciation of equilibrium exchange rates and the ERM II

A suitable parity for exchange rate fixing can be derived from an analysis of the equilibrium exchange rate. As the equilibrium exchange rates of the new EU 5 countries, the Czech Republic, Hungary, Poland, Slovenia, and the Slovak Republic, tend to exhibit appreciation trends, credibility of the potential commitment to fixed exchange rate parity with respect to the euro can be undermined. In order to investigate this issue, we estimate a behavioral model of real exchange rates for EU 5 countries and derive the respective equilibrium real exchange rates. Using the linear-quadratic filter we estimate permanent equilibrium exchange rates and their stationary points. We find that as of 2004 fixing of the national currencies to the euro should not be undermined by further significant trend appreciation in the equilibrium exchange rates of the EU 5 countries, in aggregate.

Purchasing Power Parity Exchange Rate, Misalignment and Export Growth ln Nigeria

This paper analyzes the effct of real exchange rate misalignment on the growth of non-oil export in Nigeria over the period 1960-2002. The paper employs an equilibrium model of the export market and a co-integration technique for the analysis. Real exchange rate misalignment is derived on the basis of the purchasing power parity doctrine. The preliminary data analysis indicates the existence of a long-run relation between real exports and real foreign income. The final analysis shows that real exchange rate misalignment generates adverse effects on the growth of the country’s non-oil export.

What Do We Know about Global Income Inequality?

In this paper, we review the recent literature on global interpersonal income inequality. While all estimates agree that the level is very high, with a Gini of between 0.630 and 0.686 in the 1990s, there is no consensus regarding the direction of change. We discuss methodological issues, including the use of national accounts versus survey-based estimates of mean income (or consumption) and the choice of purchasing power parity exchange rates. Findings of a rise or fall in global income inequality are not robust across different estimation methods and datasets. Given the diversity of estimates and various sources of uncertainty, including gaps and errors in the underlying data, we conclude there is insufficient evidence to determine the direction of change in global interpersonal inequality in recent decades.

Routine Laboratory Screening Among Newly Admitted Psychiatric Patients: Is It Worthwhile?

This study compared the prevalence of abnormal results of laboratory tests routinely performed among newly hospitalized psychiatric patients in Spain and the cost-effectiveness of such tests. Routine biochemical tests were performed for 510 newly hospitalized psychiatric patients. For all tests, this study examined the prevalence of values outside the normal range and compared the number needed to screen to find one abnormal result (NNSAR=1/prevalence of abnormal results in the studied population) with the direct cost spent to find one abnormal result (DCSAR=NNSAR x direct cost per test). The prevalence of values outside the normal range ranged from 1% for free thyroxine (FT4) to 36% for total cholesterol. The NNSAR ranged from 2.8 for total cholesterol to 127.3 for FT4. The DCSAR ranged from .38 international dollars of 2000 (I$) for chloride to 402.27 I$ for FT4. There were large differences in the prevalence of abnormal results (NNSAR) and cost-effectiveness (DCSAR) for the laboratory tests routinely performed among newly admitted psychiatric patients.

Routine Laboratory Screening Among Newly Admitted Psychiatric Patients: Is It Worthwhile?

Routine Laboratory Screening Among Newly Admitted Psychiatric Patients: Is It Worthwhile?

Long term projections of carbon emissions

Future scenarios of climate change depend on the projections of greenhouse gas emissions, which are highly uncertain. A framework for projecting emissions should focus on the sources of economic growth and the changing structure of the global economy over time. It also requires an understanding of key historical and statistical issues, including the role of convergence assumptions and the appropriate basis of comparisons between countries. This paper presents a methodology developed using the G-Cubed multi–country model in which the economic structure and emissions outcomes are determined simultaneously. In order to illustrate the importance of the assumptions underlying the way these long term carbon projections are produced we also explore the debate around the “Castles and Henderson Critique” of the Special Report on Emission Scenarios (SRES) regarding the use of Market Exchange Rates (MERs) rather than Purchasing Power Parity exchange rates (PPPs) for benchmarking income differentials in the world economy. We show that under one scenario, emission projections based on convergence assumptions defined in MER terms are 40% higher by 2100 than emission projections based on PPP comparisons of income differentials. While this result can not necessarily be generalized to all forecasting frameworks, the potential magnitude of the difference suggests that this is a significant issue for such projection efforts.

New Global Poverty Counts

The main objective of this paper is to compute an international poverty threshold based on the food requirement that ensures adequate calorie intake for the world’s poorest. The study proposes a new methodology based on consumer theory to provide a caloric-based international poverty threshold. Using this methodology, the international poverty line is estimated to be equal to $1.22 in 1993 purchasing power parity exchange rates. According to this new yardstick, almost 1.37 billion people were poor around the world in 2001. The study also provides global estimates of hunger, according to which 13.28 percent of the world population—equivalent to 687 million people—suffered from hunger in 2001.

Comment on “Alternative measures of output in global economic–environmental models: Purchasing power parity or market exchange rates?” by William Nordhaus

Comment on “Alternative measures of output in global economic–environmental models: Purchasing power parity or market exchange rates?” by William Nordhaus

Purchasing Power Parity Exchange Rate, Misalignment and Export Growth in Nigeria

This paper analyzes the effect of real exchange rate misalignment on the growth of non-oil export in Nigeria over the period 1960-2002. The paper employs an equilibrium model of the export market and a co-integration technique for the analysis. Real exchange rate misalignment is derived on the basis of the purchasing power parity doctrine, The preliminary data analysis indicates the existence of a long-run relation between real exports and real foreign income. The final analysis shows that real exchange rate misalignment generates adverse effects on the growth of the country’s non-oil export.