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 ...
- 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 ...
- 301
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 ...
- 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.
...
- 3,525
5
votes
Accepted
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 ...
- 42.4k
4
votes
Accepted
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 ...
- 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 ...
- 42.4k
3
votes
Accepted
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 ...
- 31.8k
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 ...
- 840
3
votes
Accepted
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 ...
- 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 ...
- 5,090
2
votes
Accepted
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 ...
- 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 ...
- 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 ...
- 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 ...
- 8,437
2
votes
Accepted
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 ...
- 8,437
2
votes
Accepted
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"...
- 1,200
2
votes
Accepted
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 ...
- 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 ...
- 42.4k
2
votes
Accepted
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 ...
- 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), ...
- 42.4k
1
vote
Accepted
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
...
- 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 ...
- 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 ...
- 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 ...
- 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)
...
- 4,694
1
vote
Accepted
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{...
- 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 ...
- 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 ...
- 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 ...
- 15.9k
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