International Relative Price Levels: A Look Under the Hood

30 Pages Posted: 18 Sep 2012

See all articles by Jaime Marquez

Jaime Marquez

Board of Governors of the Federal Reserve System - International Financial Transactions Section

Charles P. Thomas

Thomas & Son Analytics

Corinne Land

Board of Governors of the Federal Reserve System

Date Written: August 5, 2012

Abstract

This paper examines the structure of international relative price levels using purchasing power parities (PPP) at the product-level from the 2005 World Bank’s International Comparison Program (ICP). Our examination is motivated by questions arising from two applications using economy-wide PPPs: the measurement of real effective exchange rates (REERs) and the correlation between prices and development. Specifically, how would our view on competitiveness be affected if one were to use PPP measures that exclude non-tradable categories? Is it the case that an increase in per-capita income raises the prices of non-tradable categories? These questions are not new. What is new here is the use of relative price levels (as opposed to indexes) at the product level for 144 countries that differ greatly in their level of development.

Keywords: International comparison program, purchasing power parity, competitiveness, Penn Effect, real effective exchange rates, tradability

JEL Classification: F41, F43

Suggested Citation

Marquez, Jaime and Thomas, Charles P. and Land, Corinne, International Relative Price Levels: A Look Under the Hood (August 5, 2012). FRB International Finance Discussion Paper No. 1055. Available at SSRN: https://ssrn.com/abstract=2148021 or http://dx.doi.org/10.2139/ssrn.2148021

Jaime Marquez (Contact Author)

Board of Governors of the Federal Reserve System - International Financial Transactions Section ( email )

20th and C Streets, NW
Washington, DC 20551
United States

Charles P. Thomas

Thomas & Son Analytics ( email )

5409 Center St
Chevy Chase, MD 20815
United States
2022075834 (Phone)

Corinne Land

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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