Understanding International Price and Consumption Disparities

Long Vo

No 21-01, Economics Discussion / Working Papers from The University of Western Australia, Department of Economics

Abstract: This study proposes a new measure of the tradability of 120+ commodities based on price dispersion. This approach is used to construct price indices of tradables and non-tradables for 150+ countries. The expenditure share of tradables is lower for richer countries, while the relative price of non-tradables, which plays an important role in the determination of real exchange rates, is higher. Secondly, a common-factor approach (based on principal components) is introduced to compress the large volume of information on prices and quantities consumed globally. We find that cross-commodity correlations are higher for prices than for consumption. In addition, income is responsible for 98% of the variation in the first principal component of consumption but explains only 24% of the first price component. This suggests consumption are driven primarily by domestic factors, while prices are determined by factors outside the country, along the lines of the Purchasing Power Parity theory.

Keywords: Economic measurement; Price and consumption; Principal component analysis; Tradability (search for similar items in EconPapers)
JEL-codes: C43 E01 F40 (search for similar items in EconPapers)
Pages: 68
Date: 2021
New Economics Papers: this item is included in nep-mac and nep-opm
Note: MD5 = 1de560c8294bb3a35a3e14702b816206
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://ecompapers.biz.uwa.edu.au/paper/PDF%20of%2 ... 21/DP%2021.01_Vo.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:uwa:wpaper:21-01

Access Statistics for this paper

More papers in Economics Discussion / Working Papers from The University of Western Australia, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Sam Tang (repec-sbus@uwa.edu.au).