Purchasing Power Parity
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Purchasing power parity Purchasing power is the inverse of price level Calculating a price index – ratio of price levels at two different times Annual inflation P(t+1)/P(t) Cumulative inflation [P(t+N)/P(t)]^(1/n) internal purchasing power – amount of goods and services that can be purchased with $1 in the US 1/P(t,$) external purchasing power – the amount of goods and services that can be purchased with $1 outside the US 1/S(t, $/x) * 1/P(t, x) necessary to purchase some amount of pounds with dollar; examine purchasing power of those pounds in Britain
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Purchasing power parity notes
Transcript of Purchasing Power Parity
Purchasing power parity
Purchasing power is the inverse of price level
Calculating a price index ratio of price levels at two different times
Annual inflation
P(t+1)/P(t)
Cumulative inflation
[P(t+N)/P(t)]^(1/n)
internal purchasing power amount of goods and services that can be purchased with $1 in the US
1/P(t,$)
external purchasing power the amount of goods and services that can be purchased with $1 outside the US
1/S(t, $/x) * 1/P(t, x)
necessary to purchase some amount of pounds with dollar; examine purchasing power of those pounds in Britain
