Hendrik S. Houthakker

Purchasing power parity as an approximation to the equilibrium exchange ratio

Abstract Purchasing power parity (PPP) is re-examined in models with trade impediments and intermediate products that are not traded. A distinction is made between ‘local consumption PPP’ and ‘total consumption PPP’. These are tested on several data sets, with largely negative results.

Competition to international satellite communications services1

Abstract Rapid construction of transoceanic fiber optic cables and the successful establishment of private satellite companies with inter-regional or global coverage have fundamentally altered the environment in which international telecommunications capacity is provided. This article presents industry data and discusses market developments which document substantial competition that has emerged in international facilities-based telecommunications. Intelsat, historically the largest provider of international telecommunications capacity, has seen its market position decline rapidly for all services and all major geographic market areas worldwide.

The calculation of bilateral trade patterns in a Ricardian model with intermediate products and barriers to trade

Abstract After arguing for a computational approach to the theory of international trade the paper presents an algorithm for solving a generalized Ricardian two-country model. The algorithm focuses on the ‘critical exchange ratios’ at which the pattern of specialization changes. In the absence of barriers to trade there is one exchange ratio (defined as the value of one countrys labor in terms of the other countrys labor) at which production of a good moves from one country to the other. With barriers to trade there are two critical ratios for each good, between which it is not traded. Taking the critical ratios in sequence the trade balance can be calculated as a discontinuous function of the exchange rate; where the balance equals zero (or some given transfer) the problem is solved. The method works with arbitrary demand functions and can handle intermediate products.

Relative Prices and Floating Exchange Rates-an Empirical Exploration

The question whether changes in relative prices can affect exchange rates would be easy to answer if certain popular theories were valid. According to simple monetarism, for instance, the exchange rate between two currencies depends only on the money supply in the respective countries; the impact of relative price changes can hence be at most indirect, and these changes will contribute nothing to the explanation of actual exchange rates if monetary factors are also taken into account. Similarly, adherents of Purchasing Power Parity (PPP)-who may or may not be simple monetarists-hold that only the general price level, and not relative prices, matter. The Keynesian ‘absorption’ approach, which is not as popular as it once was, attributes central importance to income changes and gives little or no weight to changes in relative prices.