International Price Indexes
A central question in international economics
is "how will trade affect the production of goods
and services in the economy?"1
This question leads immediately to the requirement that
real or "inflation-adjusted" trade be measured.
However, due to the variety and complexity of the goods
and services involved in trading, it is not possible to
measure the quantity of those goods and services in
physical units. Instead, the quantities are approximated
via deflation by dividing the aggregate export sales and
import purchases by the export and import price indexes,
Subsequently, one can obtain a measure of real net
exports (RNE) by subtracting the value of imports from
the value of exports, after deflation to constant
dollars. The current value of import flows (Rm,t) is
deflated by the current import price index (Pm,t), and
the current value of export flows (Rx,t) is deflated by
the current export price index (Px,t)
IPP import and export price indexes are produced
primarily to deflate the various foreign trade statistics
produced by the Bureau of the Census and the Bureau of
Economic Analysis (BEA). As a result, IPP uses the Bureau
of the Census concept of imports and exports which, with
some minor adjustments, can also be used to deflate the
foreign trade sector using Balance of Payments (BOP) or
National Income and Product Accounts (NIPA) definitions.
Export statistics measure the value of the total physical
movement of products out of the United States. They
include products exported from the U.S. customs
territory, U.S. customs bonded warehouses, or U.S.
foreign trade zones. Import statistics measure the value
of products of foreign origin, goods of domestic origin
returning to the United States unchanged, and goods
assembled overseas with components originating in the
United States. A good is considered a general import when
it passes into a U.S. customs territory, a U.S. customs
warehouse, or a U.S. foreign trade zone.
In addition to the price indexes for goods, IPP also
constructs selected services indexes. These indexes
include import and export services indexes, as well as
international services indexes. Import and export
services indexes conform to BOP definitions and measure
the price trends for payments and receipts between the
U.S. (including its territories such as the Virgin Islands
and Puerto Rico) and foreign residents for international
services transactions. A U.S. resident includes
corporations, businesses, and individuals, but does not
require either specific U.S. ownership or citizenship.
International services indexes measure price trends for
international services transactions regardless of the
residency of the service providers and purchasers.
1Note that even if there is no change in
aggregate production, trade can affect the mix of goods
and services produced.
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