Purchasing Power Parity

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Arguments Against considering Purchasing Power Parity as the best measure for comparison

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  • There are several reasons why PPP doesnt necessarily measure comparative currency weights, though. Here is an interesting article on why things such as inputs and wages matter too: http://www.mindreign.com/en/mindshare/Global-Economics/PPP-perfect-3f/sl35291137bp327cpp10pn1.html
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  • Hi Sandeep,

    good job, It really helpfull to me,

    jawed fundolay-canada
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Purchasing Power Parity

  1. 1. ARGUMENTS AGAINST PPP IS THE BEST MEASURE TO COMPARE PRICES AND ECONOMIES Presented By Sandeep Mathew Olickal 07927811 Group # 19
  2. 2. INTRODUCTION TO PPP <ul><li>Rate of currency conversion </li></ul><ul><li>To equalize purchasing power of different countries </li></ul><ul><li>To eliminate differences in price levels </li></ul><ul><li>Ratio of prices in national currencies </li></ul><ul><li>Concept of One Price </li></ul>14-11-2007 PPP is the best measure to compare prices and economies
  3. 3. USES OF PPP <ul><li>To compare the price levels in economies </li></ul><ul><li>To compare GDP/Expenditure of Economies </li></ul>14-11-2007 PPP is the best measure to compare prices and economies PPP PPP (percapita)
  4. 4. USERS OF PPP <ul><li>IMF/UN/World Bank </li></ul><ul><li>Researchers/Universities/Govt Agencies </li></ul>14-11-2007 PPP is the best measure to compare prices and economies Power Generation English Speakers Tsunami Fund
  5. 5. CHARACTERISTICS OF THE BEST MEASURE <ul><li>Shall be better than every other possible measures of comparison </li></ul><ul><li>Shall be applied universally without exceptions </li></ul>14-11-2007 PPP is the best measure to compare prices and economies
  6. 6. ANALYSIS : PPP A BEST MEASURE ?? 14-11-2007 PPP is the best measure to compare prices and economies
  7. 7. TO COMPARE PRICES 14-11-2007 PPP is the best measure to compare prices and economies
  8. 8. TO COMPARE PRICES 14-11-2007 PPP is the best measure to compare prices and economies
  9. 9. WHY THIS VARIANCE ? 14-11-2007 PPP is the best measure to compare prices and economies
  10. 10. SENSITIVITY TO “INTERNATIONAL” PRICES 14-11-2007 PPP is the best measure to compare prices and economies Parameters China India X 1 1000 10 X 2 1 1000 P 1 1 10 P 2 5 5 EX I 10005 5100 EX C 1005 5010 S PPP,C = 0.10 S PPP,I = 0.98
  11. 11. COMPARISON OF ECONOMIES 14-11-2007 PPP is the best measure to compare prices and economies GNP Vs GNP (PPP)
  12. 12. COMPARISON OF ECONOMIES <ul><li>Purchase Power Parity of Three Transition Economies : David Barlow (Economies of Planning, 2003) </li></ul><ul><ul><li>Poland and Czech Republic (Advanced Transition) </li></ul></ul><ul><ul><li>Romania (Lagging Transition) </li></ul></ul>14-11-2007 PPP is the best measure to compare prices and economies Country 1 Country 2 Relevance Advanced Transition Developed Economy Advanced Transition Lagging Transition Lagging Transition Developed Economy Advanced Transition Advanced Transition
  13. 13. BUILDING A MODEL FOR AN ECONOMY <ul><li>Better to model in local currency </li></ul><ul><ul><li>Economic agents react to local prices & not PPP prices </li></ul></ul><ul><ul><li>Purchasing power is in local currency </li></ul></ul><ul><ul><li>Possibility of cross validation of models </li></ul></ul>14-11-2007 PPP is the best measure to compare prices and economies
  14. 14. RANKING BASED ON PPP 14-11-2007 PPP is the best measure to compare prices and economies
  15. 15. CONCLUSION 14-11-2007 PPP is the best measure to compare prices and economies
  16. 16. THANK YOU 14-11-2007 PPP is the best measure to compare prices and economies

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