14 votes

Real Exchange Rate vs PPP rate

There are several exchange rate concepts that need to be distinguished. There are bilateral and multilateral (aka "effective") exchange rates, nominal and real exchange rates, and market-price versus ...
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  • 420
10 votes
Accepted

In the US, do high wages in regions like New York and California offset the high cost of living?

TL;DR Wages offset the high cost of living in most states. In NY and CA specifically, wages are insufficient to offset the high cost of living. In New York City specifically, wages do not even come ...
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9 votes

In the US, do high wages in regions like New York and California offset the high cost of living?

A bit dated, but here are Real Personal Income and Regional Price Parities for States and Metropolitan Areas, 2008–2012. The BEA takes per capita personal income by state and normalizes it by a cost ...
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  • 15.9k
8 votes

Real Exchange Rate vs PPP rate

Effectively RER is calculated by converting currency from Country A to country B first, than purchasing the same goods in Country B, whereas PPP is the ratio of the price of goods in each country. ...
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5 votes
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How do you stop Hyperinflation in a Nation?

You can generally stop hyperinflation in very similar way as any inflation. It is generally accepted by economic profession that price level $P$ (change in which is by definition inflation) in an ...
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  • 42.4k
4 votes
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Is there any up-to-date list of hours of work needed to buy a Big Mac?

I could not find any more recent Big Mac Index in terms of hours worked, and I dont think it is avaiable as wage statistics is usually reported with 1-2 year lag in many countries, but the Economist ...
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  • 42.4k
4 votes

In which country does my money have the largest purchasing power?

Money does not have any 'immanent value'. Value of money will fluctuate across time and also different regions (1USD does not have the same purchasing power in New York as it has in Arizona). This ...
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  • 42.4k
3 votes
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Can PPP adjusted values be compared over time?

There are two questions here: Whether it is meaningful to compare PPP-adjusted values intertemporaly Whether the "Big Mac" index is a good index for PPP-adjustment. I will occupy myself ...
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3 votes

What exactly is purchasing power parity (PPP)?

What you are describing is basically purchasing power. Purchasing Power Parity (PPP) claims that your purchasing power is the same across countries. PPP states that, if say a pound of bread costs 4 ...
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  • 840
3 votes
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What is the best way to compare the price of a GB of internet across countries

Purchasing Power Parity (PPP) is probably the most convenient way of doing such comparisons so you are on right track. As mentioned in the comments there are other ways how to do international price ...
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  • 42.4k
3 votes

In which country does my money have the largest purchasing power?

I believe 1muflon1's answer is sufficient, but let me add a fun exercise The Economists does for quite a while now, the Big Mac Index. It is less of a scientific than a fun metric for PPP. If you are ...
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  • 5,090
2 votes
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Nominal GDP versus PPP in comparing military spending of different countries?

One argument for using the exchange rate: Market exchange rates are determined by the supply and demand of currencies used in international transactions. However, the prices of many goods and ...
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  • 15.9k
2 votes

Converting a GDP series to constant international dollars

You are correct. That is the right way to go. Take your starting nominal GDP series in local currency units (e.g. Euros), and use the PPP rates to transform local currency units into nominal US ...
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  • 8,437
2 votes

How are purchasing power parity (PPP) conversions computed?

The calculation of PPP is a very complex, resource consuming task. As you can imagine, coming up with a single number comparing countries relative purchasing power means many assumptions have to be ...
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  • 8,437
2 votes

Can PPP adjusted values be compared over time?

As you can see from the official dataset, the index changes over time. Therefore, by comparing a variable $x$ in two time periods using a different index for each period, the total change is a ...
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  • 8,437
2 votes
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Estimating national intangible wealth

The reference is World Bank (2006). You can see the detail of the methodology in Appendix 1, and their estimates of intangible wealth in Appendix 2. There are other methodologies to measure ...
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  • 8,437
2 votes
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How to read PPP$ aloud?

It isn't necessary to stress that these figures are pegged to the US dollar. A PPP dollar is a dollar in its own right. Thus, simply saying "The budget is three billion purchasing power parity dollars"...
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  • 1,200
2 votes
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Why is Pakistan's GDP higher than Bangladesh in PPP but lower in Nominal?

Purchasing power parity (PPP) takes into account the fact that dollar, or whatever currency is used to make the comparison, has different purchasing power in different countries. For example, if ...
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  • 42.4k
2 votes

Is wealth created when money is transferred from a wealthy country to a less wealthy country?

No purchasing power is not created from thin air. When you convert money through PPP (expressed usually in terms of local currency to USD) you are getting information about what is the purchasing ...
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  • 42.4k
2 votes
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Price level and purchasing power of currency(PPP)

Prices in themselves don't mean much when you want to predict purchasing power. Imagine a loaf of bread costs 100 of country A's monetary units in country A, while it costs 2 of country B's monetary ...
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  • 26.2k
2 votes

What are the main causes of disparity between nominal and PPP exchange rates?

There is nothing bizarre about disparity between market rates and PPP. If you do not impose any assumptions on the economy they should not even be equal (but can be under certain assumptions), ...
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  • 42.4k
1 vote
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How are PPP, nominal exchange rates and inflation related?

Let $P$ denote the price in the home country, $E$ represent units of domestic currency used to buy one unit of foreign currency, and $P^{*}$ represent the price level in the foreign country. Now, PPP ...
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  • 1,631
1 vote

If a Chinese person wants to buy an iPhone or any international goods, which GDP per capita would be a better indicator?

To me, the method to get PPP value could be crude. If you're only interested in an iPhone, here's what I would do. Get the price of an iPhone sold in China (in CNY), divided by the nominal GDP per ...
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  • 2,764
1 vote

How long can I live in the United States with my German monthly income?

How long can I – coming from country X – live in country Y by spending my last monthly salary converted by nominal exchange rate: 1 as a backpacker or as a convenience tourist? 2 adapting to ...
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  • 1,966
1 vote

How long can I live in the United States with my German monthly income?

This is tricky to answer precisely because governments vary a lot in the services they extent to visitors. There is also variation in the mix of consumption goods across countries as well as their ...
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  • 15.9k
1 vote

How to calculate PPP$ from LCUs?

It works like any other exchange rate: Divide ₹50,000 by 70 to get about US$714 / month at market exchange rates Divide ₹50,000 by 18 to get about PPP$2778 / month at PPP rates (so not a poor farmer) ...
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  • 4,694
1 vote
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Relationship between Growth in Purchasing Power and Real Interest Rate equations

$Growth\ in\ Purchasing\ Power=1+r_r = \displaystyle\frac{1+r}{1+i}$ Also it is given that $real\ interest \ rate=r_r$ So : $$real\ interest \ rate=(1+r_r)-1=\frac{1+r}{1+i}-1=\frac{1+r}{1+i}-\frac{...
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  • 753
1 vote

Would PPP adjustments between countries be irrelevant if all countries had the same relative prices?

That's correct, the PPP adjustments are made to account for the fact that living in some places is more expensive than in others. So if you are comparing two places with equal relative prices, their ...
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  • 4,148
1 vote

How purchasing power reduces when currency is commodity money(say gold)

Here is a chart from The Economist in July 2010 showing the nominal and real (i.e. inflation adjusted) price of gold in US dollars back to 1970. The nominal price later continued to rise until 2012 ...
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  • 4,694
1 vote

What does it mean if country X has a higher GDP at Purchasing Power Parity (PPP) than country Y?

I like this explanation from Callen (2007), published in the IMF's F&D, their quarterly magazine. For measuring consumption in a country, PPP is probably the way to go, but international economic ...
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