Changes In Relative Prices Research Articles

Consumers’ beliefs about health and taste attributes of ready-to-eat breakfast cereals predict consideration of nutritionally differentiated subsets of products

Inaccurate beliefs about product attributes may lead consumers to omit items from consideration in complex choice environments that they would have wanted to consider if their beliefs were accurate. Inaccurate beliefs about food attributes are well documented. Here, we examine how consumers’ beliefs about health, taste, and price attributes of food products affect the set of products they consider during the choice process. We analyze the set of products participants considered in an experiment on food choice in a choice environment featuring dozens of ready-to-eat breakfast cereals. We examine the role that participants’ beliefs about health, taste, and price attributes of products in each potential set play in predicting attention to products. Our findings show that beliefs about taste and health significantly influence people’s choices of the product set to view. Believing that products in a particular set were relatively healthier or tastier than products in an alternative set positively predicted the choice to view that set of products. This has important implications for policies that require product comparison to be effective, such as information on nutrition facts panels or changing relative prices via taxes or subsidies. If individuals hold inaccurately negative health beliefs about a product, they may omit that product from consideration, which will prevent them from comparing that product with alternatives they do examine. Thus, belief-driven inattention to products may reduce the effectiveness of policies aiming to promote healthier food choices through the application of taxes or subsidies by preventing comparison of nutritionally diverse products.

Inefficient shocks and optimal monetary policy

Real disturbances that lead to trade-offs between inflation and output gap stabilization have not been studied much in the context of monetary policy settings in emerging markets and developing economies (EMDEs). We identify market price support present in the agriculture sectors of the EMDEs as inefficient shocks that lead to such trade-offs. Using a three-sector new Keynesian dynamic stochastic general equilibrium model, we show trade-offs between core-inflation and output gap stabilization under discretionary and commitment policies. This result departs from the popular viewpoint, stating that the strict core-inflation targeting is an optimal monetary policy for EMDEs susceptible to relative price changes.

Use and Abuse of the Concept of ‘Excess Burden’ in the Theory of Public Finance

Optimal tax theory assigns two roles to the measure of excess burden, one to compare the costs of alternative tax instruments, the other to measure the deadweight loss of specific tax instruments, which presumably correspond to the welfare costs of their distortionary effects. This paper claims that the deadweight loss provides misleading measures of welfare costs from tax distortions, because it requires to make unverified assumptions to equate costs to distortions and ensure that the deadweight loss is greater than zero. Taxes other than the lump-sum tax and tax-induced changes in relative prices cannot generally be assumed to be distortionary.

Relative Price Changes of Ecosystem Services: Evidence from Germany

Discounting future costs and benefits is a crucial yet contentious practice in the appraisal of long-term public projects with environmental consequences. The standard approach typically neglects that ecosystem services are not easily substitutable with market goods and often exhibit considerably lower growth rates. Theory has shown that we should either apply differentiated discount rates, such as a lower environmental discount rate, or account for increases in relative scarcity by uplifting environmental values. Some governments already integrate this into their guidance, but empirical evidence is scarce. We provide first comprehensive country-specific evidence, taking Germany as a case study. We estimate growth rates of 15 ecosystem services and the degree of limited substitutability based on a meta-analysis of 36 willingness to pay studies in Germany. We find that the relative price of ecosystem services has increased by more than four percent per year in recent decades. Heterogeneity analyses suggest that relative price changes are most substantial for regulating ecosystem services. Our findings underscore the importance of considering relative price adjustments in governmental project appraisal and environmental-economic accounting.

What happened to the workshop of West Africa? Resilience and decline of handicraft textiles in colonial northern Nigeria, 1911–52

AbstractThe Sokoto Caliphate of northern Nigeria was the workshop of West Africa in the pre‐colonial nineteenth century, producing famous blue‐black cloth that reached many markets south of the Sahara as well as across it. Under British colonial rule this large handicraft textile industry was faced with the winds of foreign competition. We rely on a newly digitized set of colonial district reports to measure the impact of trade on northern Nigerian textile manufacturing and find that (contrary to British expectations) areas closer to railway stations were less likely to experience industrial decline. We argue that the resilience of local textiles relied on the low opportunity cost of dry‐season labour. Analysing a piece of tax microdata, we show that a low opportunity cost of labour outside of the rainy season was associated with a higher likelihood of engaging in textile by‐employment. Seasonal changes in relative factor prices were a trap as well as a refuge. Part‐time employment limited specialization and technological innovation, and can help to explain why northern Nigerian textiles eventually declined. Thus, beyond our particular case study, these results contribute to our understanding of the role of seasonality in determining the structure and pace of development of tropical economies.

The Effect of Availability of Foreign Exchange and Devaluation of Birr on the Performance of Companies in Ethiopia (Instance of Sample Company)

When a country devalues its currency, some firms and countries generally benefit from any resulting changes in relative prices, while other firms and countries are relatively unaffected or suffer a loss in competitiveness. By taking a sample of import and export firms, this study assessed the effect availability of foreign currency and devaluation of birr on performance of firms in Ethiopia in general. More specifically it intended to assess the main challenges to access foreign currencies, assess the effects of foreign currency shortage on import/export firms, assess the effects of devaluation of Birr on import/export firms and assess company-specific factors. The study used both primary (collected through questionnaire) and secondary data collected from financial statements of the companies. This study applies both the descriptive and inferential analysis. After detail analysis, the increase in private driven business, Informal channels of inflow of foreign currency, increased population and Corruption will worsen appropriate use of forex and aggravate challenges of shortage of forex. And also it is found that the foreign currency shortage has affected the firms in many ways such as profit loss, lay off employees and discourages new investment. On the other hand devaluation of birr against the foreign currencies makes Ethiopian commodities to be competitive in international markets. And it can also attract new investments and export.

Relative-Price Changes as Aggregate Supply Shocks Revisited: Theory and Evidence

Relative-Price Changes as Aggregate Supply Shocks Revisited: Theory and Evidence

The relevance of Thirlwall’s growth law in the Zambian economy

AbstractThis paper uses a blended methodology—conventional tests of ‘Thirlwall's law’ combined with an in‐depth growth narrative approach and unit root tests—to identify the dominant balance‐of‐payments adjustment mechanism in the Zambian economy over the period 1956–2017. Consistent with Thirlwall's growth law, the main results identify income changes as the dominant balance‐of‐payments adjustment mechanism, rather than relative price changes. The three‐regime export demand function further reflects the vulnerability of the Zambian economy to unexpected busts in the world copper market, and highlights the need for effective industrial policies to create a more diversified economy into higher value‐added manufactures. The analysis also demonstrates that the results are robust to some of the main criticisms that have been levelled against Thirlwall's original growth law.

Monetary policy when export revenues drop

We study how monetary policy should respond to shocks that permanently alter the steady state structure of the economy. In such a case monetary policy affects not only the short run misallocations due to nominal rigidities, but also relative prices which stimulate reallocation of capital. We consider a permanent and negative shock to export revenues that requires a larger traded sector and a smaller non-traded sector in the new steady state. This reallocation calls for a change in relative prices during the transition, but may also lead to a period of high unemployment. We show how an appropriate monetary policy could mitigate the welfare costs of the transition by allowing the exchange rate to depreciate, and thereby allowing inflation to increase in the short run. Traditional monetary policy regimes, such as inflation targeting or a fixed exchange rate, would imply high unemployment and inefficiently slow transition. Stabilizing nominal wage growth, in contrast, would be close to the welfare-optimal monetary policy.

The Cost of Public Higher Education and College Enrollment

ABSTRACT How have changes in the price of enrolling full time at public 2- and 4-year colleges affected student decisions about whether and where to enroll in college? Using local differences in the growth of tuition at community colleges and public 4-year colleges, we study the impact of public higher education tuition prices on the post-secondary enrollment decisions of high school graduates over three decades. We model prospective students’ decisions about whether to attend community college, a public four-year university in their state of residence, other colleges, or no college at all, as relative prices change. We identify enrollment impacts by instrumenting tuition prices using policy variation imposed by state appropriations and tuition caps. We estimate that in counties where local community college tuition doubled (about an average for the study period), the likelihood of post-secondary enrollment fell by about 0.05, on a mean of about 0.80. In addition to reducing college enrollment overall, rising tuition at community colleges diverted other students to four-year colleges. Rising relative prices of four-year public colleges similarly diverted some students toward community colleges but did not limit college attendance in the aggregate. We also find evidence of endogeneity in tuition-setting at the institution level.

Accounting for Mexican business cycles

AbstractThe Mexican economy experienced two large crises: in 1995 and in 2008. The dynamics and origins of the episodes are very different; nevertheless, is there a common underlying mechanism? First, by applying the Business Cycle Accounting method, we find that the efficiency wedge is the main driver of output during both episodes. We present an equivalence between the neoclassical growth model with distortions and a small open economy with imported intermediate goods inputs, in which relative price changes manifest themselves as changes on the efficiency wedge. This result proposes a solution for the theoretical puzzle regarding the relationship between terms of trade shocks and productivity. Finally, the model is able to reproduce both the intensities and velocities of the crises in Mexico.

Bioenergy and Employment. A Regional Economic Impact Evaluation

Estimating green energy’s impact on regional economies of developing countries is challenging, owing both to the lack of disaggregated data of non-conventional energy sources at the subnational level and a method to address its participation in the energy matrix. We develop a methodology to solve both problems and apply it to the case of Santa Fe province, Argentina, an important producer of biofuels (biodiesel from soybean and ethanol from maize). To disaggregate the participation of biofuel sectors we combine aggregated sector information with subsector surveys. Once established the share of biofuels in the economy and their potential to create jobs, it is possible to generate statistics on the input-output relationships. With the latter, we estimate a hybrid input-output model and calculate the effects of shocks on production and employment stemming from the full utilization of existing idle capacity, as well as from new investments in the sector. The instrument allows us to several policy evaluations, for instance, of acceleration of the energy matrix transition to renewables through regulations, to study the effect of changes in relative prices of energy, determine the effect on potential employment creation of subsidies to promote the activity, etc. The sector we analyze empirically had an initial value added of 745 million dollars and employs near to 1200 persons, and an important idle capacity plus delayed projects because of external shocks. In a conservative scenario of full capacity utilization plus ongoing investments, production more than doubles, and employment can grow 414 percent. On the other hand, a 50 percent additional increase in new capacity implies a total value-added increase of 421 million dollars and a 378 percent increase in jobs. Even when the output effect is lower than in the former scenario, the employment effect is proportionally much larger since the latter scenario includes transient jobs in the construction phase.

Carbon Taxation and Greenflation: Evidence from Europe and Canada

Abstract This paper studies the effects of carbon pricing on inflation dynamics. We construct a sample of carbon taxes implemented in Europe and Canada over three decades and estimate the response of inflation and price components to carbon pricing. Our empirical results suggest that carbon taxes did not significantly increase inflation, with dynamic effects estimated around zero in most specifications. Instead we find support for relative price changes, increasing the cost of energy but leaving the price of other goods and services unaffected. This is consistent with previous findings on the limited aggregate economic costs of carbon taxes. Based on the cross-section of taxes in Europe, we provide suggestive evidence that the response of inflation was especially muted in countries with revenue-neutral carbon taxes and autonomous central banks that can accommodate potential inflationary pressure associated with carbon pricing.

Household consumption patterns and the consumer price index, England, 1260–1869

AbstractExisting long‐run consumer price indices for England rely on a fixed consumption basket. Here we construct a methodologically improved, chained‐Laspeyres price index for ordinary households based on their changing expenditure patterns between 1260 and 1869. Rather than offering a revisionist perspective on long‐run costs, it confirms the broad accuracy of existing indices for the pre‐industrial period. The dominant dependence of the key items of expenditure on agricultural, particularly arable, prices explains this finding. The industrial period introduced a new dynamic. The shift in household expenditure towards imported groceries and manufactured goods allowed for more substitution in response to relative price and income changes. Adding the current series to those chained‐Laspeyres indices available for later periods provides a CPI for ordinary households in England over nearly eight centuries; from 1260 to the present day.

Sensitivity of Exports to Change in Relative Prices and Nominal Exchange Rate: Case of Manufacturing Exports of Sri Lanka

The Sri Lanka Journal of Management (SLJMS) is an international, peer-reviewed journal which is published by the Faculty of Management Studies, The Open University of Sri Lanka with high quality, and original research contributions to management knowledge.

Inflation Everywhere is a Monetary Phenomenon: An Introductory Note

Ever since the 1970s, when inflation became a virtually global phenomenon, controlling inflation has become a high priority for policy-makers. Given the well-known costs of inflation, policy now in all countries is inflation-averse. Perhaps one of the more important adverse consequences of inflation may be that high and persistent inflation is a regressive tax1 which adversely impacts the poor.2 The poor are extremely limited in their options to protect themselves against inflation; they are normally asset-poor, while most of their saving is in the form of cash. Inflation erodes cash savings and protects the rich who hold real assets.3 It is not surprising that inflation may be politically costly for the government. Studies have also found that high and volatile inflation has been detrimental to growth and financial sector development. Resource allocation is inhibited as inflation obscures relative price changes and thus inhibits optimal resource allocation. For policy to control inflation, it is important to understand the factors that drive inflation. Unquestionably, empirical evidence points to “inflation being always and everywhere a monetary phenomenon” [Friedman (1963)]. However, there still remains some debate on whether supply-side factors could cause inflation without monetary accommodation.4 The structuralist school of thought holds that supply constraints that drive up prices of specific goods can have wider repercussions on the overall price level. Similarly, there are a number of possible sources of rising costs such as wages, profits, imported inflation-exchange rate, commodity prices, external shocks, exhaustion of natural resources, and taxes. For example, in Pakistan, increases in the wheat support price have frequently been blamed for increasing inflation.5 ........

Changes in food consumption from an agricultural-based economy to industrialisation: Uruguay (1900–70)

AbstractThe literature about the nutrition transition has been discussing the existence of different paths. The case of Uruguay is introduced as a different case of transition. We focus on the period 1900–70 when the country shifted from an agricultural-based economy to industrialisation through import substitution. We estimate the annual historical time series of per capita consumption of the main food items in the Uruguayan diet using the commodity flow approach complemented by the FAO’s Food Balance Sheets methodology. We identify the major trends in food consumption and discuss the main explanatory factors. We find that Uruguay showed a transition from a very high animal food-based diet towards a more diversified pattern with more milk, cereals, and vegetables. On top of that, we sustain that not only income is important to explain the major shifts in food diet, but also preferences, changes in relative prices, and productivity.

The impact of currency devaluation on non-oil exports in Africa

Aim: This study assesses how devaluation in official exchange rate and change in relative prices influenced non-oil export in African countries for the period of 30 years (1991-2020) in 11 African countries (Nigeria, Burkina Faso, Burundi, Eswatini, Mauritius, Mozambique, Niger, Rwanda, Sierra Leone, Tanzania and Uganda).
 Design/Research methods: This study utilized different estimators namely Mean Group, Pooled Mean Group as well as dynamic panel GMM methods. The major advantage of the MG estimator is that it is reliably efficient even in presence of weak cross-sectional dependence of the errors by estimating separate regressions to calculate coefficient means. Moreover, it applicability knows no bounds even when estimator for each individual country is weakly cross correlated. With a PMG estimator, a large scale individual panel heterogeneity in short-run responses is accommodated given homogenous long-run relations across countries.
 Findings: The results of the panel co-integration suggest a long-run equilibrating relation amongst the variables in the study. This was validated on the basis of absolute t-value of 5.0781under the t-bound. Our results for both MG and PMG estimators show significant negative devaluation and relative prices effects on non-oil exports in 11 African countries. The dynamic panel GMM results are robust and in agreement with the estimates of MG and PMG. From the results of cross-sectional analysis by country, results for countries revealed exchange rate devaluation had negative and significant impact on non-oil exports. Consequently, depreciation of the exchange rate has a short-run adverse effect on non-oil export due to high inelastic import dependence. Similarly, with exemption of Rwanda, and South Africa, the relative price effect was negatively significant for every other country in the study.
 Originality: The originality is based on fact that the paper establishes both static and dynamic responses of non-oil export to devaluation in official exchange rate, relative prices, and foreign capital from trading partners in 11 African countries.
 Limitations: It would be desirable to study 30 countries in Africa. We could not proceed with all countries due to inaccessibility of relevant data. Hence, caution should be taken in generalizing our findings.
 Key word: exchange rate devaluation, relative prices, foreign capital, panel ARDL, African countries
 JEL: C33, F13, F21

DETERMINANT OF CONSUMER SERVICE CONSUMPTION – A COMPARATIVE STUDY OF RURAL AREAS OF MAJOR STATES INCLUDING GUJARAT AND INDIA

Three components, viz., income, consumption and savings are most invaluable indicators for economic development of any nation. From these three indicators, consumption plays vital role for the development process as high consumption encourages production activities which automatically leads to increase in employment and income generation which is again converted to consumption of miscellaneous goods and services. The rise in income results in higher demand of existing goods and services in the short run as well as in the long run. Even due to change in technology and fashion, the taste of population changes which results in demand of goods and services which were not existing previously. In this paper, rural areas of 15 major states, rural areas of 3 minor states and nation as a whole are considered to know the consumption pattern of non-food items. It is tried to analyze the effect of changes in income and relative price on different non-food goods and services. It is important to study the consumption of non-food items in the rural family as a part of service sector. In tis paper, per capita total consumption expenditure is taken as a proxy variable for per capita income, because more reliable data are available for the former as compared to the latter. Various models like linear, quadratic and power, have been fitted on consumer service consumption data, KEYWORDS – Consumer Service Consumption Expenditure, Total Consumption Expenditure, Rural Major States, Rural India, linear model, quadratic model, power model and concluded that power model is the most appropriate.

A connection between the consumer theory and quantity theory of money

This essay shows a connection between consumer theory and quantity theory of money, inspired by Richard Cantillon's approach, in which changes in the money stock influence price levels, characterizing the elasticity of the money supply in relation to the price level to the consumer. Thus, changes in the money supply generate changes in the price level, and such monetary effects impact the consumer's optimal choice if the change in the money supply influences the prices of two goods with different intensities. When the government expands the amount of money in the economy, it affects relative prices and, consequently, changes the decisions of economic agents in a market economy. Based on US quarterly data, 1946:04 to 2019:04, the empirical results show that the change in the stock of money directly affects the optimal change in consumption and indirectly affects the optimal change in consumption via the change in relative prices, showing that money does not it's neutral.