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 ?
Azerbaijan will rank first in the CIS in terms of purchasing power (according to purchasing price parity) of the minimum pension.
Poverty rate in China as measured by the percentage of people living on the equivalent of $1.90 or less per day in the 2011 purchasing price parity terms fell from 88% in 1981 to 6.5% in 2012.
It highlighted, 'The very low level of real GDP per capita of around $5,000 on a purchasing price parity (PPP) basis ranks within the bottom 15th percentile of our rated sovereigns, which constrains the country's credit profile relative to peers.'
Another dimension added to the maze of GDP is purchasing price parity (PPP).
Starting from similar levels a half-century ago, South Korea has grown to become one of the world's most prosperous economies, with nearly 50 million people enjoying a per capita income of $30,000 (at purchasing price parity).
Americans' views on the environment are perhaps most appropriately compared to those in other countries with high per-capita gross domestic products (at purchasing price parity).
(In 2000, according to the World Bank, the average income in the advanced countries at purchasing price parity was $27,450, with the US income averaging $34,260 and Israel's income averaging $19,320.