macroeconomic implications of the exchange rate theory based on productivity marcin jędrzejczyk ...
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Macroeconomic Implications of the
Exchange Rate Theory Based on Productivity
Marcin JędrzejczykMarcin Jędrzejczyk
http://www.rigel.pl/inahttp://swed.ae.krakow.pl
“Purchasing Power Standard (PPS) shall mean the artificial common reference currency
unit used in the European Union to express the volume of economic aggregates for the purpose of spatial comparisons in such a way that price level
differences between countries are eliminated. Economic volume aggregates in PPS are obtained by dividing their original value in national currency units by the respective PPP. One PPS thus buys the same given volume of goods and services in all countries,
whereas different amounts of national currency units are needed to buy this same volume of goods and services in individual countries, depending on the
price level”.
Comparative analysis of the 1,5 kW engines manufactured in Poland and
the USA
TAMEL BALDOR ELECTRIC
Power 1,5 kWSg 90 L-4B3380 V50 HzInsulation class F1200 rpm
Power 1,5 kW4 PoleB3 Mounting380 V50 HzInsulation class F1160 rpm
SELLING PRICE:
312,32 zł $ 380
AFTER TRANSLATION (CONVERSION):
$ 78 1520 zł
PURCHASING POWER STANDARDPURCHASING POWER STANDARD
$/82,0$380
312zl
zlPPS
In case of production of the economic system, the problem seems to be quite different than in consolidated balance sheet. Let us take the real GDP (GDPR) which represents the nominal GDP expressed in the last years’ prices for Poland and for the USA. We consider GDPR as a product of wage (cost of labour) W and real productivity coefficient (RWP). The subscript P denotes Polish and subscript A the American wage and real productivity.
PPP RWPWGDPR
AAA RWPWGDPR
Macroeconomic Implications of the Exchange Rate Theory Based on
Productivity
Let us divide the equations:
A
P
A
P
A
P
RWP
RWP
W
W
GDPR
GDPR
Then reformulating we obtain:
[$]][ AA
P
A
PP GDPR
RWP
RWP
W
WzlGDPR
Macroeconomic Implications of the Exchange Rate Theory Based on
Productivity
The above formula shows some applications of the exchange rate. Therefore we write subsequent formula where f(ER) denotes some function of exchange rate.
[$])(][ Ap GDPRERfzlGDPR
Macroeconomic Implications of the Exchange Rate Theory Based on
Productivity
Dividing labour cost W by number of employees we obtain formula where AP means average pay and L number of employees of the given countries:
[$]][ AA
P
A
P
A
PP GDPR
RWP
RWP
L
L
AP
APzlGDPR
where GDPRE – GDPR per one employee.
Macroeconomic Implications of the Exchange Rate Theory Based on
Productivity
Factor of the above equation including average pays and wage productivity is according to our research the exchange rate formula. Thus only GDP per one employee can be reasonably multiplied by the exchange rate. Therefore the fundamental formula is:
[$]$][ AP GDPREzlERzlGDPRE
Macroeconomic Implications of the Exchange Rate Theory Based on
Productivity
To achieve comparability of GDP per capita following procedure should be applied:
$][[$] zlERzlGDPRELGDPR PPP
where LP means the overall number of employees in Poland.
Macroeconomic Implications of the Exchange Rate Theory Based on
Productivity
To convert the GDP per employee to GDP per capita (GDPRC) we have to include the relation between the number of employees (LP) and the number of inhabitants (LM) of the considered country:
$][[$] zlERzlGDPREL
LGDPRC P
M
PP
Macroeconomic Implications of the Exchange Rate Theory Based on
Productivity
We can come up to the conclusion that exchange rate does not apply directly to wages, prices of goods and conversion of GDP to dollars. According to the introduced formula one can estimate GDP in dollars starting with GDPR per one employee as has been shown in this paper. To conduct the calculations it is only necessary to have the data from both countries such as number of employees, number of inhabitants, average pays dependent on the productivity.
Macroeconomic Implications of the Exchange Rate Theory Based on
Productivity
CONCLUSIONSCONCLUSIONS
Exchange rate is not applicable in Exchange rate is not applicable in converting the value of manufactured converting the value of manufactured goods ,goods ,
Exchange rate is applicable only to real Exchange rate is applicable only to real GDP per one employee,GDP per one employee,
Exchange rate is not applicable to GDP Exchange rate is not applicable to GDP per capita,per capita,
To convert value of assets, PPS ratio is To convert value of assets, PPS ratio is applicable.applicable.