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purchasing power parity
| April 11th, 2014 at 2:20:17 AM permalink | |
| Pacomartin Member since: Oct 24, 2012 Threads: 1068 Posts: 12569 | According to the IMF world economic database, if Canadians spend their money in the USA they get a 11.7% increase in purchasing power (on average). Similarly if citizens of USA spend their money in Mexico, they get a 47% boost in purchasing power. The equivalent percentages for the EuroZone are as follows. -32.0% Luxembourg -28.0% Finland -20.0% France -19.8% Belgium -17.2% Austria -16.1% Ireland -16.0% Italy -15.6% Netherlands -15.0% Germany -1.3% Cyprus -0.7% Spain 7.3% Greece 7.3% Portugal 13.6% Estonia 16.7% Malta 18.2% Slovenia 34.1% Slovak Republic 71.7% Latvia In all countries if we have 1000 Euros, it will cost $1387 in exchange. But in Spain the 1000 euros will have purchasing power nearly equivalent to the nominal exchange rate (i.e. $1377 in purchasing power) . In Latvia the money will buy considerably more, but in Luxembourg or Finland it will buy considerably less. But I thought the Euro Zone was supposed to drive away these imbalances. In theory you would sell more goods in countries like Luxembourg thus driving down the prices, and there would be more purchases in Slovakia and Slovenia thus bringing up prices. So my first question is why are the imbalances as high as they are? My second question is why would Italy and Ireland have a negative percentage? As historically poorer nations, why are prices so high? |
| April 11th, 2014 at 3:07:51 AM permalink | |
| AZDuffman Member since: Oct 24, 2012 Threads: 135 Posts: 18204 |
The answer to "why are the imbalances still there" is simple. Think in terms of the USA. Where does a hotel room cost more, NYC or Buffalo? Where will a meal cost more, S.F. or Mobile, AL? There can be wildly varying costs of living within a country, or even state. It seems to come down to the cost of land and availability of labor. S.F. is costly because it is crammed into a small area relative to population. A landlord can sub-divide a packing crate and find takers. OTOH, in Dallas there is plenty of land and few natural barriers to sprawl. In parts of North Dakota labor is very tight, so much so that WMT pays $15 an hour, A state away this is not happening. As a guess Italy is high for two reasons. One is that it is a mountain country where much of the best land was spoken for generations ago. Second is Italy has a mafia-tax on many items. No ideas on Ireland. The President is a fink. |
| April 11th, 2014 at 7:43:53 AM permalink | |
| Nareed Member since: Oct 24, 2012 Threads: 346 Posts: 12545 |
Very likely because costs of all kinds vary between different jusrisdictions. If you comapre purchasing power between the different US states, I'm sure you'll find imbalances as well. Donald Trump is a one-term LOSER |
| April 11th, 2014 at 9:17:52 AM permalink | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pacomartin Member since: Oct 24, 2012 Threads: 1068 Posts: 12569 |
No doubt, different parts of the USA are very different economies. Just looking at the economy, in most countries the purchasing power of the dollar exceeds the normal exchange rate by a fair amount. Ecuador, Panama, and El Salvador use the US dollar as their currency, but the dollar goes further. Some of the smaller countries like Bahamas, Belize, East Caribbean nations print their own currency, but the exchange rate is fixed (either 1:1, 2:1, or 2.7:1) and the currency is backed mostly by US treasury notes. Argentina is one of the wealthiest countries in the Western Hemisphere. I am not sure why their currency is so out of whack.
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