Talk:Purchasing power parity

From Academic Kids

I believe it to be highly unjustified that sources like

the

CIA Factbook and The Economist

display the GDP only via PPP (purchasing power parity) without giving at all a note what this parity is based upon.

There should always be a total figure of Gross Domestic Product to get an idea what the country is really producing.

It doesn't make any sense to measure an economy on how expensive T-Shirts and Big Macs are.

To display the PPP in this sense is highly unprofessional and DECEIVING!

It is understandable that the CIA Factbook is using the PPP to sex up the U.S. statistics, because pure numbers the US has a slighly lower GDP than Germany and a much lower GDP than Japan.

I am not completely against the PPP, however there should be a link on what is actually included (neither at the CIA Factbook website nor on the Economist website I could find this) and in addition they should state the real GDP, which they do not do.

Using the PPP in this way is highly deceiving and does not enable to form an objective picture but is highly subjective !

PPP is a scam used by economists, and it is without any connections to reality.

I don't have a stand on this, but that paragraph was extremely unprofessional, not to mention unrelated.

Vacuum 23:15, Jan 2, 2004 (UTC)

Actually the factbook does give the source, check the definitions section. --Voodoo 00:09, 6 May 2004 (UTC)

"Major rewrite"

• I've just done a major rewrite. The new version clarifies what the PPP method is, what it's used for and why, and what issues it has. I also removed all references to a PPP "theory." PPP is a method, not a theory. I know of no theory saying that "in equilibrium, the exchange rate that will prevail between two countries will be that which equalizes the prices of traded goods in each country." The whole point of using PPP is that using real exchange rates, goods won't cost the same amount in different countries. Isomorphic 01:46, 10 Jun 2004 (UTC)
  • Because of so called arbitrage some prices strive towards a common price. For example prices for precious metals like gold doesn't range widely across borders. Gold ([1] (http://www.nymex.com/jsp/markets/gol_fut_cso.jsp)) cost $420 US dolllars per troy ounce in most parts of the world. If it sold for $200 bucks per ounce in Canada or even China it would sell out pretty quick. While things like a Big Mac is not as easily arbitraged across wide distances.

 ?

• The article states "If a Big Mac costs USD$4 in the US and GBP£3 in Britain, the PPP exchange rate would be £3 for $4." and "while in the US, GDP per capita was about $27,500 and the PPP was $36,000". So if the PPP burger cost $4 in the states, how much does the burger cost in the dollar for dollar currency market? Can you even trade US dollars for US dollars? Please clarify this.
• Do not be confused by for example the IMF numbers that show a disparity between US PPP and Nominal numbers ([2] (http://www.imf.org/external/pubs/ft/weo/2004/02/data/dbcoutm.cfm?SD=1980&ED=2005&R1=1&R2=1&CS=3&SS=2&OS=C&DD=0&OUT=1&C=111&S=NGDP_R-NGDP-NGDPD-NGDPRPC-NGDPPC-NGDPDPC-PPPWGT-PPPEX-PPPPC&CMP=0&x=59&y=15)), it's simply because of different GDP base numbers, the USD to USD PPP and Market exchange rates is of course alwys 1.0. Thanks - Jerryseinfeld 00:00, 11 Oct 2004 (UTC)
  • Since no one else would correct the errors, I wrote a "clarification". - Thanks - Jerryseinfeld 13:08, 28 Oct 2004 (UTC)

I don't get...

this:

"It takes into account that some goods like real estate, services (e.g. medical services) and heavy items are non-traded, and thus not reflected in the exchange rate."

Why should this affect PPP?

The basic idea is that traded goods (think iPods) have a similar price everywhere. Nontraded goods do not: you might get a haircut for 50 cents in some countries; you might as well buy a mansion for a few thousand Dollars, if labour costs and real estate is cheap enough. Your x-thousand Dollars might buy that much more goods and services in that other country.

Secondly, maybe a nice easy definition should happen above the ToC, like "The PPP measures better how much an individual can buy in terms of an international measure (usually dollars), since goods and services in some countries have different prices than others. It is often considered a better measure of standard of living than just national income." Okay it's similar to the definition, but I found it quite technical if someone just looks up what 'PPP' means. --Mark Lewis 20:14, 3 Feb 2005 (UTC)

I just rewrote the intro, using some of what you wrote. I'm trying to keep it clear that PPP is, fundamentally, a way of comparing two currencies. Its purpose is, as far as I know, always to compare GDP or per capita GDP, but that's not what it is. OK, I'm pedantic ;-) Anyway, the truth is that the article needs a lot of rewriting. Parts of it are overly technical or poorly explained, and I'm not even sure that some parts are correct. Unfortunately, my knowledge of the subject is a bit weak. I listed it on Wikipedia:The Business and Economics Forum as needing attention; hopefully someone can fix it eventually. Isomorphic 22:41, 3 Feb 2005 (UTC)

Thanks for such a rapid reply, and I think the intro now provides a nice easy quick reference for someone simply looking for a non-technical definition. --Mark Lewis 17:53, 4 Feb 2005 (UTC)