Don t Be a Sap! (Our Class Motto?)
Why do I keep asking you for longer time series on real estate data? Data is good. More data = more information. Sadly, we have cases where people selectively present information to mislead. 45
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60% 6.0% 4.0% 2.0% 0.0% 2.0% 4.0% 6.0% 60% Annual Percentage Change, CPI for Real Rents 1997 and 1998 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 48
120.0 0 115.0 110.0 105.0 100.0 95.0 90.0 85.0 80.0 0 CPI for Real Rent, 1950=100 1997, 1998 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 49
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A student chart: Brazil s exchange rate 51
400 4.00 Brazilian Reals per U.S. Dollar 3.50 3.00 Stronger Real / Weaker 2.50 Dollar 2.00 1.50 1.00 0.50 52
Brazil s annual inflation rate 1981 100% 1982 100% 1983 138% 1984 192% 1985 226% 1986 147% 1987 228% 1988 629% 1989 1430% 1990 30377% 1991 400% 1992 1020% 1993 1929% 1994 2076% 1995 66% 1996 16% 1997 7% 53
Brazilian Reals per US Dollar, annual data (Priorto 1994 currency reform, indexchained as if cruzadoswere reals) 1.000000000000000 0.100000000000000 0.010000000000000 reform 1994 Currrency 0.001000000000000 0.000100000000000 0.000010000000000 1993: Divide cruzeiro rate by 1000 0.000001000000000 0.000000100000000 0.000000010000000000000010000000 0.000000001000000 0.000000000100000 0.000000000010000 0.000000000001000 0.000000000000100 0.000000000000010 0.000000000000001 1948 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 54
World Population http://www.worldmapper.org/
Total GDP at Purchasing Power Parity Exchange Rates http://www.worldmapper.org/
Simon Kuznets Nobel Prize in Economics, 1971 57
Have you noticed that the World Development Indicators has many measures of GDP/GNI? Let s do a quick tutorial on some of the main measures. 58
If you re not a local, understanding GDP requires understanding di exchange rates Today we ll look at GDP PC data; we ll talk about exchange rates conceptually, a bit. Next week, we ll take a quick look at exchange rates, more explicitly. 59
Which GDP number? WDI presents multiple measures of economic output, including: GDP in current US Dollars GDP in constant (real) US $2000 GDP in constant Local Currency Units (LCU) GDP in current international dollars PPP GDP in constant Purchasing Power Parity (PPP) GDP, or GDP Per Capita? WDI also present a set of numbers of GNI (an alternative ti measure, GDP plus net income from abroad). 60
GDP per capita (current US$) GDP per capita is gross domestic product divided by midyear population. GDP is the sum of gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value of the products. It is calculated without making deductions for depreciation of fabricated assets or for depletion and degradation of natural resources. Data are in current U.S. dollars. This one is handy but remember the value of the dollar changes over time because of inflation. This one is a good choice if you want to examine (e.g.) a Mexican investment from the perspective of a Japanese investor. Use dollar/peso and dollar/yen exchange rates to get peso/yen. 61
GDP per capita (constant 2000 US$) GDP per capita is gross domestic product divided by midyear population. GDP is the sum of gross value added by all resident producers in the economy plus any product taxes and minusany subsidies not included in the value of the products. It is calculated without making deductions for depreciation of fabricated assets or for depletion and degradation of natural resources. Data are in constant U.S. dollars. This measure shows us GDP PC from a U.S. perspective, adjusted for the changing value of the dollar, given inflation. 62
GDP per capita (constant LCU) LCU: Local Currency Units. GDP per capita is gross domestic product divided by midyear population. GDP at purchaser's prices is the sum of gross value added d by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value of the products. It is calculated without making deductions for depreciation of fabricated assets or for depletion and degradation of natural resources. Data are in constant localcurrency currency. This measure shows us the time path of real GDP PC from the perspective of a local consumer or investor. 63
PurchasingPower Power Parity Pioneered by Irving Kravis, Alan Heston and Robert Summers (International Comparison Program, a.k.a. Penn World Tables ) Adjusts for cost of living i (including differences in real estate t prices) International dollar is the numeraire, i.e. U.S. cost of living is the benchmark. (US PPP GDP is the same as US GDP) Tends to raise the measured GDP of poorer countries (including China, etc.) Tends to lower the measured GDP of countries with really expensive real estate (e.g. Japan) 64
PurchasingPower Power Parity Note PPP adjustments are based on costs of housing/real estate for typical consumers in that country, often the cost of Class A, Western style real estate has less weight. Requires extensive survey data for basic calculations. Countries/dates not in survey sample areadjusted adjusted using regression models. PPP data are therefore subject to additional errors. Note you can t take dollars to China (or anywhere else) and exchange them at the PPP rate! 65
GDPper capita, PPP (current international$) GDP per capita based on purchasing power parity (PPP). PPP GDP is gross domestic product converted to international dollars using purchasing power parity rates. An international dollar has the same purchasing power over GDP as the U.S. dollar has in the United States. GDP at purchaser's prices is the sum of gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value of the products. It is calculated without making deductions for depreciation of fabricated assets or for depletion and degradation of natural resources. Data are in current international dollars. Good choice if you want to do PPP but express in a third currency. 66
GDP per capita, PPP (constant 2005 international i l$) GDP per capita based on purchasing power parity (PPP). PPP GDP is gross domestic product converted to international dollars using purchasing power parity rates. An international dollar has the same purchasing power over GDP as the U.S. dollar has in the United States. GDP at purchaser's prices is the sum of gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value of the products. It is calculated without making deductions for depreciation of fabricated assets or for depletion and degradation of natural resources. Data are in constant 2005 international dollars. This measure shows us GDP PC, adjusted for the local prices ofnon tradeables (notablyhousing) housing), inreal dollars. 67
10,000 1,000 100 10 Alternative Measures of China GDP Per Capita Constant $2000 Current U.S. Dollars Constant PPP Current PPP 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 68
0.30 Alternative Measures of Annual Growth Rates in China GDP Per Capita Real LCU Constant $2000 Current U.S. $ Current PPP Constant PPP 0.20 0.10 0.00 0.10 0.20 0.30 69
Which GDP number? Examine them all, but for simplicity I usually focus on two measures of output, all GDP per capita: GDP PC in constant (real) US $2000 GDP PC in constant Purchasing Power Parity (PPP). IfI m Im advising a local investor or government, then I focus on GDP PC in constant LCU. 70