Purchasing Power of Currency
The "real exchange rate" (RER) is the purchasing power of a currency relative to another. It is based on the GDP deflator measurement of the price level in the domestic and foreign countries, which is arbitrarily set equal to 1 in a given base year. Therefore, the level of the RER is arbitrarily set depending on which year is chosen as the base year for the GDP deflator of two countries. The changes of the RER are instead informative on the evolution over time of the relative price of a unit of GDP in the foreign country in terms of GDP units of the domestic country. If all goods were freely tradable, and foreign and domestic residents purchased identical baskets of goods, purchasing power parity (PPP) would hold for the GDP deflators of the two countries, and the RER would be constant and equal to one.
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Famous quotes containing the words purchasing power, purchasing, power and/or currency:
“Purchasing power is a license to purchase power.”
—Raoul Vaneigem (b. 1934)
“Fashion is the most intense expression of the phenomenon of neomania, which has grown ever since the birth of capitalism. Neomania assumes that purchasing the new is the same as acquiring value.... If the purchase of a new garment coincides with the wearing out of an old one, then obviously there is no fashion. If a garment is worn beyond the moment of its natural replacement, there is pauperization. Fashion flourishes on surplus, when someone buys more than he or she needs.”
—Stephen Bayley (b. 1951)
“The competent leader of men cares little for the niceties of other peoples’ characters: he cares much—everything—for the exterior uses to which they may be put.... These are men to be moved. How should he move them? He supplies the power; others simply the materials on which that power operates.”
—Woodrow Wilson (1856–1924)
“One of the reforms to be carried out during the incoming administration is a change in our monetary and banking laws, so as to secure greater elasticity in the forms of currency available for trade and to prevent the limitations of law from operating to increase the embarrassment of a financial panic.”
—William Howard Taft (1857–1930)