It is assumed here that the theory of purchasing power parities applies only to internationally tradable goods. – If productivity in the sector of tradable products rises in a country, the prices for these products will by no means fall by themselves, since these are generally always determined by global market conditions. – Rather, productivity gains will be reflected in wage increases in that sector of the economy. – But because the sector of non-tradable goods must now fear a migration of its labor force to the sector of tradable products, wage increases will also have to be conceded in those sectors. – This will lead to price increases for non-tradable goods. – In this way, the price level of the economy as a whole will increase. – See labor demand, sectors, locational, cash flow effect, services, non-market, money, hot, flight money, cost of capital effect, purchasing power parity, exchange rate channel, economy, two-tier. – Cf. Monthly Report of the Deutsche Bundesbank of October 2002, pp. 49 ff., Monthly Report of the ECB of May 2005, pp. 71 f., Monthly Report of the Deutsche Bundesbank of June 2007, pp. 48 f. (differences within the euro area; overview).
Attention: The financial encyclopedia is protected by copyright and may only be used for private purposes without express consent!
University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
https://de.wikipedia.org/wiki/Gerhard_Ernst_Merk
https://www.jung-stilling-gesellschaft.de/merk/
https://www.gerhardmerk.de/