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Measures Of International Relative Prices For China And The Usa

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  • Charles P. Thomas
  • Jaime Marquez
  • Sean Fahle

Abstract

. In this paper we assemble a measure of international relative prices to gauge the average amount by which prices in China and the USA differ from the prices of their trading partners. Our estimated weighted average of relative prices for China and the USA are the first to use the significantly revised purchasing power parities embodied in the price data from the World Bank's World Development Indicators. Our analysis reveals several findings of interest. First, interactions between the structure of trade and the levels of relative prices are sufficiently important to induce divergences between the weighted average of relative prices and conventional real effective exchange‐rate indexes. Second, revisions embodied in World Development Indicators price data generally lower the estimate of US international relative prices. Third, net exports are inversely related to the estimate of US international relative price, but, for China, the correlation is positive. Estimating this correlation for other countries reveals no systematic pattern related to the level of development alone. Fourth, unlike previous work, using our price measures we find that an increase in US prices relative to Chinese prices raises the share of China's exports to the USA. Finally, there is a distinct possibility of eliminating the long‐standing differential in income elasticities of US trade in empirical applications.

Suggested Citation

  • Charles P. Thomas & Jaime Marquez & Sean Fahle, 2009. "Measures Of International Relative Prices For China And The Usa," Pacific Economic Review, Wiley Blackwell, vol. 14(3), pages 376-397, August.
    • Handle: RePEc:bla:pacecr:v:14:y:2009:i:3:p:376-397
    DOI: 10.1111/j.1468-0106.2009.00456.x
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    References listed on IDEAS

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    Cited by:

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    2. Shaghil Ahmed, 2009. "Are Chinese exports sensitive to changes in the exchange rate?," International Finance Discussion Papers 987, Board of Governors of the Federal Reserve System (U.S.).
    3. Chunyun Wang & Xiaoxi Yu & Jiang Zhao, 2022. "Identifying the Real Income Disparity in Prefecture-Level Cities in China: Measurement of Subnational Purchasing Power Parity Based on the Stochastic Approach," Sustainability, MDPI, vol. 14(16), pages 1-24, August.
    4. Campbell, Douglas L., 2016. "Measurement matters: Productivity-adjusted weighted average relative price indices," Journal of International Money and Finance, Elsevier, vol. 61(C), pages 45-81.
    5. Kang, Wensheng & Ratti, Ronald. A. & Vespignani, Joaquin, 2016. "The implications of liquidity expansion in China for the US dollar," Working Papers 2016-02, University of Tasmania, Tasmanian School of Business and Economics.
    6. Andrea Papetti, 2021. "Population aging, relative prices and capital flows across the globe," Temi di discussione (Economic working papers) 1333, Bank of Italy, Economic Research and International Relations Area.
    7. Fischer, Christoph & Hossfeld, Oliver, 2014. "A consistent set of multilateral productivity approach-based indicators of price competitiveness – Results for Pacific Rim economies," Journal of International Money and Finance, Elsevier, vol. 49(PA), pages 152-169.
    8. Hou, Tianyu & Xie, Chang, 2025. "The RMB value added real effective exchange rate: Theory, measurement and analysis," International Review of Financial Analysis, Elsevier, vol. 106(C).
    9. Willem Thorbecke, 2013. "Investigating China's Disaggregated Processed Exports: Evidence that Both the RMB and Exchange Rates in Supply Chain Countries Matter," The World Economy, Wiley Blackwell, vol. 36(10), pages 1245-1260, October.

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