E31 - Price Level; Inflation; DeflationNávrat zpět

This article addresses the emergence of double-digit inflation in the Baltic states during 2022 and 2023, following decades of price stability. Utilizing monthly data spanning from January 2010 to February 2023, our study aims to comprehensively analyse the inflation dynamics in the Baltic context, considering both domestic and global factors. Through the application of the fully modified ordinary least squares (FMOLS) and dynamic ordinary least squares (DOLS) methodologies, we identify significant influences such as exchange rate fluctuations, food and energy price movements and geopolitical events, notably the ongoing conflict in Ukraine. Our findings contribute to a deeper understanding of the determinants of inflation in the Baltic region, offering insights essential for informed policymaking aimed at mitigating vulnerabilities to future inflationary shocks.

The main purpose of this paper is to investigate the long-term effects of money supply, economic growth, interest rate, exchange rate, domestic credits and the oil price on inflation in Haiti, Sudan, Türkiye and Zambia, which are among the world’s highest-inflation countries according to 2021 data. For this purpose, a panel cointegration approach is applied where fully modified ordinary least squares (FMOLS) and dynamic ordinary least squares (DOLS) techniques are employed to explore the long-term effects with the help of annual data for the period 2000–2019. Also, the Dumitrescu and Hurlin panel causality test is used to determine whether there is a causality from these variables to inflation. The empirical findings show that there is a long-term relationship among these variables for the whole panel. The consequences from the FMOLS and DOLS estimates show that (i) money supply has a positive effect on inflation, (ii) economic growth affects inflation positively, (iii) an in-crease in the exchange rate causes inflation to rise, (iv) the oil price affects inflation positively, (v) interest rate affects inflation negatively, and (vi) domestic credits have a negative effect on inflation. In this context, we find that the exchange rate is the variable that has the greatest effect on inflation. Moreover, the findings of the panel causality test suggest that there is a causal relationshipfrom money supply, economic growth, exchange rate and the oil price to inflation.

Monitoring of inflation rate dynamics is one of the most important tasks in order to identify the current economic conditions of the observed countries. The aim of this study is to examine the unit root properties of inflation in the Western Balkan countries. It also investigates the existence of structural breaks and nonlinearity. The time horizon encompasses the period 2006Q1-2020Q2. The results suggest that the inflation in Albania and Montenegro manifests a nonstationary process and structural breaks. The macroeconomic shocks will have more persistent effects on the inflation rate if it is characterized by nonstationarity. The inflation rates of Serbia and Bosnia and Herzegovina are characterized by nonlinear mean reverting behaviour. This implies less costly implementation of the proclaimed monetary strategy.

Monetary metals have historically been important in providing limits to the quantity of money. The mandatory backing of money with gold or silver was gradually circumvented and abolished. Both precious metals have thus become, among other things, investment assets associated with returns and risks. They may or may not be profitable and safe. The absence of precious metal limits has led to a significantly faster devaluation of money. However, inflation may also be reflected in rising market prices for financial and real assets. This paper analyses the potential interrelationships between inflation, market prices of shares in the S&P 500 index, and market prices of gold over the period 1996-2020 in the United States. The analysis shows a strong impact of inflation on both the stock index and gold. The market price of gold was partly influenced by the development of market stock prices.

The article examines the factors of convergence of price levels among European countries, even regarding the time lag since previous research on the Czech Republic's accession to the EU. In addition to the factors included in the Balassa-Samuelson model, it has been found that certain structural factors contribute to price convergence, as could be expected especially in the transition economies after accessing the EU in 2004. It has also been confirmed that in the context of liberalization of the economies in Central and Eastern Europe, the enlarged internal market and harmonization from the EU level, it is not possible to clearly distinguish between "tradable" and "non-tradable" sectors. Contrary to expectations, however, it has been questioned that due to price deregulation in the Czech Republic, reduced price deviation would be reported for goods with regulated prices so the threat of Baumol's disease is still seen in this context. It is also relevant for the context of European integration that it is possible to doubt the risk of price jumps in the Czech Republic after the adoption of the euro, regarding the examination of the price convergence factors.

This paper explores whether downward rigidity in nominal wages has negative impacts on the economy in the case of deflation caused by economic growth. In this situation, growth of real wages may be delivered by a fall in the price level even if nominal wages are constant. Hayek's proposal to stabilize MV is studied in detail. The nominal GDP is stabilized within this framework, and when potential output is growing, the price level might decrease. It is derived that this Hayekian rule would lead to a fall in nominal wages in an economy with positive population growth, which restricts the space for deflation. Friedman's proposal to stabilize prices of factors of production is also examined. It results in weaker deflation than Hayek's proposal and no need for decrease in nominal wages. The next part of the article demonstrates that the Hayekian framework may not require a fall in nominal wages in a converging economy if the labour share of income is gradually increasing, even if population growth is positive.

This paper deals with the absolute version of purchasing power parity and its applicability in transition economies. The aim of the paper is to identify and quantify deviations between nominal exchange rates and rates based on purchasing power parity. The paper specifies and analyses the theoretical causes of those deviations and focuses on the impact of prices of non-tradable goods on purchasing power parity. Parity exchange rates based on prices of tradable-only goods are then calculated for 20 transition economies. Panel regression instruments are used to analyse the influence of selected macroeconomic and institutional variables on deviations between nominal exchange rates and rates based on purchasing power parity.

Advanced countries are losing their predominant position in the world economy. With the long-time productivity slowdown and the present long recession, a question arises about the threat of secular stagnation of the advanced world. In searching for the roots of this threat, leading world economistst accentuate either the demand side, or the supply side of the economy. In this respect, the authors add globalization as another important factor. Globalization has resulted in long-term global and internal imbalances, and caused deep problems in the advanced countries - deindustrialization, unemployment, growing dependence on the social safety net, and a permanent increase of government intrusion into the economy. After the 2008 crisis, fiscal and monetary policy concentrates on short-term support of economic recovery, leaving aside the deeper long-term deficiencies. With multiple negative trends acting in the same direction, the threat of secular stagnation should not be overlooked.

The aim of this paper is to show that the current anti-deflationary rhetoric of central banks lacks adequate support from the economic literature. Based on pure theory, there might be both positive and negative effects of deflation on economic development. The historical record is, if anything, also ambiguous. As recent literature reveals, a substantial number of deflationary periods were accompanied by robust economic growth. The two frequently mentioned examples of dismal deflationary periods - the Great Depression in the United States and the lost decades in Japan - seem to be exceptions. Taking into account the arguments presented in this paper, we argue that central banks should revise their communication strategy. If there is a need to defend easy monetary policy, the main argument should be based, dominantly, on the divergence of forecasted inflation from the inflation target, with a much lesser emphasis on the need to avoid the allegedly destructive effect of deflation.

European Union member countries are currently exposed to the large complex of the economic crisis implications. Poor macroeconomic performance together with an increased uncertainty on the financial markets causes is accompanied with increased exchange rate volatility. As the result exchange rates determine macroeconomic development of the countries during the crisis period the way that seems to differ in comparison with the pre-crisis period. Considering the wide variety of effects that exchange rates transmit to the domestic economy from abroad in the paper we focus on the external price impulses and their impact on the domestic price indexes in the new EU member states. VAR methodology is implemented to investigate responsiveness of exchange rate to the exogenous price shock to examine the dynamics (volatility) in the exchange rate leading path followed by the unexpected oil price shock and effect of the unexpected exchange rate shift to domestic price indexes to examine its distribution along the internal pricing chain. Our results revealed differences in absorption capabilities of exchange rates in countries with rigid and flexible exchange rate arrangements. Implications are even stronger considering distortionary effects of the crisis period.

The article deals with the theoretical issues of macro-prudential policy, the influence of risk channel of monetary policy on financial stability and the cooperation of macro-prudential and monetary policy, respectively the compatibility of the objectives of these policies. On the Czech economy data is therefore tested the relationship between monetary policy conditions and prices of selected categories. The model results open the door to greater use especially of the industrial producer price index, respectively its sub-indices, for the coordination of monetary and macro-prudential policy in the Czech Republic.

Price levels affect real incomes across countries and regions. We compare real incomes of workers and pensioners across 14 regions of the Czech Republic. We find that taking into account regional differences in price levels compresses the income differences between regions for private sector employees, but increases them for pensioners and some groups of public-sector employees. This result is strengthened when we employ microeconomic data to refl ect the education, occupations, age and gender of workers. Private-sector wages in Prague are 43% higher than in the rest of the country, but one half of this difference can be explained by Prague's higher price level and the other half by workers' characteristics. When we take these two factors into account, public-sector wages and pensions are the lowest in Prague. We discuss the benefi ts and costs of the government refl ecting the regional price levels in setting public-sector wages or pensions.

The aim of this paper is the formulation and econometric estimation of a small macroeconomic model, which is intended to provide an understanding of fundamental economic relationships in the eurozone. Unemployment is used to represent real economic activity. Phillips curve links unemployment with infl ation and Taylor rule describes the monetary policy of the European Central Bank. The results from econometric estimation indicate that interest rate policy of the European Central Bank has only a very limited effect on unemployment. Furthermore, the reaction coeffi cient for infl ation in the Taylor rule does not support Taylor principle. This paper also presents original method for measuring NAIRU. The proposed method for estimating NAIRU uses probabilities of fi nding and loosing a job. These probabilities are made endogenous in the model, which is the main contribution of the paper.

Economic education is considered of prime importance nowadays with direct implications for effectiveness of monetary policy. We aim to verify with an application of experimental method, whether economic education acquired has weakening or even suppressive effects on recently resurrected phenomenon of money illusion. If our hypothesis will be proved, previous evidence about signifi cant indirect effects of money illusion, causing significant long-lasting deviations of the economy from equilibrium after the shock, might be significantly alleviated, weakening thereby predictions of the New Keynesian model. Our findings suggest that even well-educated individuals do not have the ability to pierce the veil of money and do not form expectations properly after a fully anticipated monetary shock. As a result we can infer that money illusion is multiplied and nominal rigidities are intensifi ed even in the economy that consists of well-educated individuals.

The article deals with the theoretical issues of macroprudential policy, shift of monetary policy paradigm towards application of so called "leaning against the wind" strategy and mutual cooperation of these policies, which are both aimed at maintaining financial stability. For detection of financial instability are mainly used early warning indicators, which are most often based on the credit activity of the economy and asset prices development. In the second part, we examine the impact of the credit activity in the Czech Republic on the prices of particular assets and its subsequent effect on the consumer price index.

This paper deals with the topic of experimental computations and estimation of regional GDP components by expenditure approach in the NUTS 3 regions of the Czech Republic. As huge amount of data is necessary, this topic has not been successfully solved by official statistics yet. Just one expenditure component - gross fixed capital formation - is regionally published by the Czech Statistical Office, the others, such as final household consumption expenditures, government expenditures or net export balance, are estimated in this paper. Also the net savings of regions are experimentally computed. Different data sources needed to be used for estimations; apart from Czech Statistical Office and Institute for Regional Information data other sources as transportation statistics, health statistics etc. had to be employed. An important related issue is also the regional price level problem, whose implications are discussed in the paper as well. Finally regional differences in the structure of regional GDP are examined.

It is generally accepted, that output gap belongs to the main indicators of inflationary pressures and is often used by central banks when executing monetary policy. When output gap is positive, there are inflationary pressures in economy and inflation will rise. In case, that there is negative output gap in economy, inflation will decline. The aim of this paper is to find whether there is relationship between these two variables for Czech economy. To find the answer, two gap models following Coe, McDermott (1997) and Claus (2000a) will be used - with level of the output gap and change in the output gap. All tests confirm, that central bank should use it as indicator of inflation.

The article deals with monetary disequilibrium in the theory of endogenous money. In new consensus economics, monetary disequilibrium is not considered whereas money is endogenous and passive. In post-Keynesian economics, there is an explicit discussion about reconciliation of money demand and supply. Based on careful distinction between money and credit markets, it is argued that monetary disequilibrium can occur even when money is endogenous and therefore money is endogenous and active. This is because of  insufficiency of reflux mechanism. The article suggests ways in which new consensus should be supplemented to incorporate this issue. This is also important for monetary policy otherwise a part of transmission mechanism is left out.

The main goal of this paper is to analyse the process of price convergence (beta and sigma convergence) in new EU Member States towards the Euro area (EU-12). The theoretical part of the paper consists of a brief overview of methods that are employed for analyses of the process of price convergence. Both main concepts - sigma and beta convergence are covered including various tests that are described in greater detail. The empirical part of the paper is focused on testing hypotheses of sigma and beta convergence using macroeconomic data (comparative price levels for GDP) for twelve new EU Member States in the period 1995-2008. Various econometrical methods (OLS, 2SLS, and two dynamic methods) are utilised in order to deal with problems associated with this particular type of analyses. Our results show that both hypotheses (sigma and beta price convergence) do hold for the new EU Member States. The estimated time to close a half of the remaining gap of comparative price levels towards the Euro area average for the group consisting of all new EU Member States (NMS12) is estimated to be approximately 9.6 years, for the group of more advanced countries (NMS5) is approximately 7.1 years.

The values of comparative price levels vary greatly in individual EU countries and depend on many different economic factors. The EU countries were divided into two distinguishable groups. Both OLS and robust regressions were used to analyze the influence of the comparative price levels on selected indicators. If outliers and leverage points were identified using robust outliers' detection and the results of the OLS and robust fits differed significantly, the robust fits are preferred. When differences were not significant, the OLS fits can be used. Models for 27 EU countries and groups of countries differ significantly with respect to indicators included.

The article deals with the relationship of post-Keynesian economics to new consensus as a theoretical framework of inflation targeting. First, new consensus with its roots in Wicksell's approach is briefly introduced. In the next parts differences and meeting-points of new consensus and post-Keynesian economics are discussed. Among the main similarities is identified: short term interest rate management, endogeneity of monetary base, endogeneity of money supply. But a lot of basic differences are found (goals of monetary policy, interest rate functions, nature of inflation, shape of Phillips curve and others). As a result, on the general level new consensus and post-Keynesian economics seem to be rather incompatible.

In this paper we discuss the issue of the choice of exchange rate regimes in transitive economies and the effect of exchange rate policy on the development of macroeconomic indicators (e. g. the average growth rate of real GDP in domestic currency and the development of domestic inflation). It is obvious that exchange rate policy is not a passive factor, at least in the medium term. Our analysis indicates that the fixed foreign exchange rate arrangements policy does not necessarily mean stability of the foreign exchange rates. Neither percentage exchange rate changes of fixed rates, nor their volatility measured by the standard deviation are lower than the average change is over the examined period. Our analysis indicates also that the inflation rate is growing in accordance with the growth of depreciation of the foreign exchange rate and the growth of its volatility measured by the standard deviation. It was cleared that the higher volatility of the effective nominal exchange rate is reflected by the lower average economic growth rate of transitive countries.

In this paper the stability of an inflationary process is examined. A dynamic model of the inflation has been developed based on the quantity theory of money. Some theorists say that any rate of inflation other than zero is inherently instable. They say that as people become aware of the fact of continues inflation, however slow, they will anticipate inflation and this anticipation generates inflation. We showed that there exists a model, which helps us to understand that inflation is not necessarily explosive. We follow the ideas of Ph. Cagan.

Monthly and yearly inflation rates can be understood as rates of dynamics of the basic inflation indicator i.e. the consumer price index. These indicators modify the original inflation information. It is important to analyze the difference of the consumer price index, monthly and yearly inflation rates, from the viewpoint of their frequency content, time lag and deformations. The theory of linear filtration and its representation in the frequency domain is used. Under particular assumptions, in the time series of yearly inflation rate there can be spurious cycles and high-frequency motions. The time series of yearly inflation rate lags behind the time series of instantaneous inflation rate about six months in low frequencies and the time series of monthly inflation rate lags behind the time series of instantaneous inflation rate about half of the month in all frequencies.

The economic development of the Czech Republic and Slovakia after the split of former Czechoslovakia in 1993 shows some important differences, caused by different economic policy and the starting level. The convergence of the Slovak economic level to the Czech one was very fast after the World War II, due to the massive reallocation of resources (the transfer of resources in favour of Slovakia represented 11 % of the Slovak GDP). The Slovak economy adjusted to the lower economic level after the split by sinking real wages and by depreciation of the Slovak koruna, so that the ULC are now the lowest among the Central European countries. Slovakia enjoyed very fast growth of GDP in recent years fluctuating from 7 to 10 %, while in the Czech Republic it reached from 6 to 7 %. The abundant inflow of FDI and economic reforms helped to speed the real convergence in Slovakia, which continued fluently after a deep fall accompanying the split of Czechoslovakia. In 2007, the Slovak GDP per capita measured in PPS reached 84 % of the Czech one. The common challenge for both economies is to overcome the one-sided orientation on cost/price competitiveness based on low wages and pass over to the qualitative competitive advantage, based on the innovations and production of high quality goods and services.

Slovak Republic entered the ERM II in the end of 2005 whereby it came nearer to its strategic objective - joining the euro area. In this paper we try to answer two questions. Section 1 examines the features and risks of the EMU. Is EMU an optimum currency area and what is the OCA scorecard of euro area? We conclude that euro area - in spite of its indisputable benefits - is rather a premature monetary union with asymmetric monetary policy effects and other policy asymmetries. Section 2 analyzes possible effects of the EMU on the Slovak economy. We examine the experience of other countries and compare their real convergence to average level of euro area before and after joining the EMU. The readiness of Slovak economy for euro adoption, possible obstacles on this uneasy way and the connection between income level, price level and real convergence are analysed at the end of the paper.

We consider two markets in our model: wholesale, where producers' supply interacts with distributors' demand, and retail with distributors' supply and consumers' demand. The wholesale market determines the producer price index (PPI), production and indirectly also employment. In the retail market the consumer price index (CPI) is formed. We specify a simple dynamic model with two state variables: CPI and PPI. Real variables - production and employment - are fully determined by CPI and PPI. A supply shock shows itself in instant PPI adjustment, a demand shock in CPI. Thus, in the CPI inflation equation the supply shocks are fully determined endogenously by the wholesale - retail markets relationship and for practical use we should add exogenous demand shock to the equation. On the other hand, it would be suitable to add exogenous supply shocks to the PPI inflation, production and employment equations. In the second part we implement the model on monthly data of EU countries. It will be necessary modify the model specification so that we coped with the problems of seasonality and not exactly the same structure of baskets, used for CPI and PPI computations. We estimate each equation of the model both for each single country separately and for the whole panel.

This paper deals with the narrowing the income gap between the Central and East European New Member States (NMS-5) and the EU-25 and with the trade-off between the real and nominal convergence. The methodology is based on international standards enabling comparisons of macroeconomic indicators, especially of GDP per capita in purchasing power parity and alternative indicators of real gross domestic income, which comprises gains or losses from the terms of trade changes. In the chapter 1 the changes in catching-up and in the position of the NMS-5 economy within the framework of EU-25 are analysed. Chapter 2 deals with the trade-off between the real and nominal convergence. The regression analysis of the comparative price and wage level in relation to the economic level reveals deviations from the theoretical values, especially in the Czech Republic. The unit labour cost's level comparisons examine the cost/price competitiveness. The perspective of real convergence is analysed in the conclusion.

Czech economy has recently accelerated the real economic convergence to the European average. Nevertheless, in terms of price convergence the Czech economy is still lagging behind the expected dynamics, which should theoretically respond to the pace of relative economic growth. This asymmetry may (as one of many other factors) contribute to some difficulties in stabilizing Czech inflation during the two-years transition period before accession to the Euro-zone, when price convergence criterion and exchange rate stability criterion should be simultaneously met. The paper points out selected issues of the Czech nominal convergence dynamics and emphasizes possible negative impacts of restrictive monetary policy measures (pushing for low inflation rate and stable exchange rate vis-à-vis euro) on the real growth of the Czech economy. In this respect, the paper tries to find some lessons from Slovenian and Greek approach for the arrangement of the Czech monetary policy in the pre-accession period.

During 1930s and 1940s Josef Macek developed monetary theory leading to monetary policy recommendations which are deeply influenced by macroeconomic theory of John Maynard Keynes. Macek became leading Czech left-wing keynesian. His theory of money was nominalist and similarly to J. M. Keynes and G. Cassel he elaborated the concept of managed fiat money. He critisized and disapproved the quantity theory of money. In his monetary theory and his monetary policy conclusions he was a forerunner of contemporary post-keynesian monetary theories. Money supply is in his monetary theory highely endogenous and he expressed certain doubts about effeciency of monetary policy measures as antirecessionary remedy.

The co-integration of time series indicates the presence of their common trends. For analytical purpose it is important to transform some time series into gap form. This transformation can be received as a difference between the time series and the common trends. The model of demand for money in Czech Republic created by real M2, real GDP and 1R PRIBOR time series contains two common trends. These trends are estimated from the state space form of unobservable components model. The gap transformations of real M2 and real GDP series can be used for identification of inflation risks. The relatively high correlation was found between gap form of M2 and rate of inflation. The relationship between gap form of GDP and rate of inflation is not so close.

In this short paper there will be introduced the stream of economic theory labelled as the New Economic Geography (NEG) and derived the core-periphery model, a flagship of the NEG. It is a model of two regions with imperfect competition and increasing returns to scale, where some properties of the model contrast certain features of basic neoclassic models of regional economics and international trade. The role of monopolistic competition and increasing returns to scale opens the possibility of highly nonlinear effects of production location with respect to barriers of trade. I analyze main mechanisms of the model and discuss the relevance of the NEG for economic policy in the context of European economic integration.

New concepts have been presented in modelling of inflation dynamics recently, among others the New Keynesian Phillips curve (NKPC). There are several traditional ways of NKPC model validity testing, but none of them seems to be practically applicable in conditions of the Czech Republic. We tried to test the validity of the NKPC model by the untraditional method proposed by Demery and Duck (2002). This method does not rely on direct estimation of NKPC parameters, but relatively easy tests based on the cointegration analysis of time series are employed. Its application indicates that the NKPC model cannot be considered as effective in conditions of the Czech Republic; this model does not describe the inflation process sufficiently and it is not a suitable model for inflation prediction or for the choice of appropriate monetary (anti-inflation) policy.

New members of the EU will not form an optimum currency area with the present eurozone member states. The article discusses some costs and benefits of an early EMU entry for the Czech Republic (and other Central-European economies). The authors concentrate on the consequences of loss of country-specific monetary policy, and of exchange-rate flexibility. They also stress the problem of finding the appropriate level at which to fix the exchange rate for both ERM-II and eurozone entry. The importance of both nominal and real convergence is underlined for a successful catch-up. The conclusion is that a "no hurry" policy for euro would be beneficial for a long-term catch-up process of the Czech Republic. Use of country-specific monetary policy is indispensable for real convergence.

The paper consists of four parts each of them devoted to a practical aspect of inflation targeting as conducted by the Czech National Bank. The first part outlines the reasons that led to the adoption of this monetary regime and summarises other advantages for effective and transparent decision-making. The second part addresses the issue of missing inflation targets. It is argued that simple confrontation of targets with actual behaviour of inflation may give a distorted view about the actual performance of monetary policy. The third part discusses a subtle methodological controversy about the difference between so-called escape clauses on the one hand and net inflation on the other. In the last section the author presents his critical view about the role of unconditional forecast in its capacity to indicate future interest rate decisions and to provide a realistic description of transmission mechanism in a small open economy.

This study stress attention to the effects of imperfect competitive markets, menu costs and firm near rationality upon nominal price rigidity and non-neutrality of money in works of new keynesian economists. New keynesians consider the price rigidity as a direct expression of the firm price decisions in the context of the nominal aggregate demand shock initiated by change in the central bank money supply. But such case of nominal price stability is the result of firm price decision only when it meets combination of "right" parametres of firm demand and supply function, it means "right" slope of marginal revenue and marginal costs function and their stability (anti-cyclical movements of the mark-ups) that is based above all on high firm monopoly power and high elasticity of labor supply. Explanation of the price rigidity should therefore put together the influence of menu costs and near rationality with real price and wage rigidities.

In the second half of the year 2000 the intensity of the economic integration of the country with EU economies was on a very high level. Czech law system has already absorbed and transposed major part of the acquis and has advanced also in building adequate administrative capacities to implement it. In spite of this several problems and barriers have blocked the road to accession, both on the EU side and on the Czech side as well. In the end the outlooks of the real convergence of the Czech economy to the EU average based on Czech, EU and Austrian calculations are commented.

The study is an empirical investigation of inflation convergence between CEFTA and EU countries. The question of both groups convergence as well as convergence of each individual countries within those groups is particularly discussed in the paper. Detailed analysis was carried out by use of panel estimation in the individual and in the time setup. The study reveals an unambiguous convergence of all CEFTA inflations towards the EU levels between 1993 and 2000.

International comparison of gross domestic product and its component expenditures is based on the utilization of purchasing power parities which are conversion rates (both currency converters and price deflators). When GDPs of countries are converted to a common currency using PPPs, they are also revalued at common set of prices. The paper presents the concept of purchasing power parity and international comparison programmes of real expenditure on GDP. Particular attention is devoted to the last programme for 1999. The article explains both the methodology and the benchmark results of the 1999 round of Eurostat-OECD Purchasing Parity Programme.