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ARGUMENTS AGAINST
PPP IS THE BEST MEASURE TO COMPARE
PRICES AND ECONOMIES
Presented BySandeep Mathew Olickal
07927811Group # 19
INTRODUCTION TO PPP Rate of currency conversion
To equalize purchasing power of different countries
To eliminate differences in price levels
Ratio of prices in national currencies
Concept of One Price
14-11-2007 PPP is the best measure to compare prices and economies
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USES OF PPP To compare the price levels in economies To compare GDP/Expenditure of Economies
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PPP is the best measure to compare prices and economiesPPP PPP (percapita)
Power GenerationEnglish Speakers
USERS OF PPP IMF/UN/World Bank Researchers/Universities/Govt Agencies
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PPP is the best measure to compare prices and economies
Tsunami Fund
CHARACTERISTICS OF THE BEST MEASURE
Shall be better than every other possible measures of comparison
Shall be applied universally without exceptions
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PPP is the best measure to compare prices and economies
ANALYSIS : PPP A BEST MEASURE ??
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PPP is the best measure to compare prices and economies
TO COMPARE PRICES
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TO COMPARE PRICES
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PPP is the best measure to compare prices and economies
WHY THIS VARIANCE ?
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PPP is the best measure to compare prices and economies
SENSITIVITY TO “INTERNATIONAL” PRICES
Parameters
China India
X1 1000 10X2 1 1000P1 1 10P2 5 5EXI 10005 5100EXC 1005 5010
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PPP is the best measure to compare prices and economies
SPPP,C = 0.10 SPPP,I = 0.98
COMPARISON OF ECONOMIES
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PPP is the best measure to compare prices and economies
GNP Vs GNP (PPP)
COMPARISON OF ECONOMIES Purchase Power Parity of Three Transition
Economies : David Barlow (Economies of Planning, 2003) Poland and Czech Republic (Advanced Transition) Romania (Lagging Transition)
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PPP is the best measure to compare prices and economies
Country 1 Country 2 RelevanceAdvanced Transition
Developed Economy
Advanced Transition
Lagging Transition
Lagging Transition Developed Economy
Advanced Transition
Advanced Transition
BUILDING A MODEL FOR AN ECONOMY
Better to model in local currency
Economic agents react to local prices & not PPP prices
Purchasing power is in local currency
Possibility of cross validation of models
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PPP is the best measure to compare prices and economies
RANKING BASED ON PPP
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PPP is the best measure to compare prices and economies
CONCLUSION
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PPP is the best measure to compare prices and economies
THANK YOU
14-11-2007 PPP is the best measure to compare prices and economies
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