purchasing power parity

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Purchasing power parity

The notion that the ratio between domestic and foreign price levels should equal the equilibrium exchange rate between domestic and foreign currencies.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Purchasing Power Parity

The theory stating that, in an efficient market, the exchange rate of two currencies results in equal purchasing power. That is, if one pound is worth two dollars, one pound in England should buy the same amount in goods and services that two dollars can buy in the United States. Fixed exchange rates, taxes, and other inefficiencies are thought to disrupt purchasing power parity. Some theorists believe the idea holds most true when comparing countries or regions with similar standards of living.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

purchasing power parity

the tendency for the EXCHANGE RATE between the currencies of two countries to reflect long-term differences in the INFLATION rates of these countries under a FLOATING EXCHANGE RATE SYSTEM. Thus, for example, if the inflation rate in country A were 10% per annum and that of country B 6% per annum, then in order to maintain parity between the PURCHASING POWER of the two currencies, country A's currency would have to depreciate by 4% against country B's currency.
Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson
References in periodicals archive ?
The rankings are based on per capita GDP and purchase power parity, a measure that economists typically use to look at an individual's wealth when comparing differences in the cost of living and economic power between countries.
The US Bureau of Economic Analysis (BEA) in its report on the gross domestic production (GDP) of 225 economies, announced that the Islamic Republic of Iran has been ranked the world's 16th greatest economies in 2009.<p>Iran's GDP valued at $876 billion in 2009, the report announced adding that being ranked 16th greatest economy in the world based on purchase power parity (PPP) index.