purchasing power parity

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Related to purchasing power parity: Relative purchasing power parity

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.

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.

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.
References in periodicals archive ?
Proposition 1: Under purchasing power parity, a flexible exchange rate system always performs better.
Hung, Mao-Wei, Yin Ching, Jan (2002) Use of Deviation of Purchasing Power Parity and Interest Rate Parity to Clarify the 1997 Asian Financial Crisis.
As our data demonstrate, real exchange rates can show large and persistent deviations from levels consistent with purchasing power parity.
1997: Purchasing power parity in the presence of foreign exchange black market: The case of India.
Measured by purchasing power parity, the OECD predicts that China's GDP would overtake that of the United States by 2030.
Gross Domestic Product (GDP) Per Capita at Purchasing Power Parity: GDP in US$ per capita at current prices and purchasing power parity.
Purchasing power parity constitutes one of the fundamental building block in modeling the modern theories of exchange rate determination.
However, its purchasing power parity per capita of nearly US$10,000, makes it by far the most affluent in the region.
The study compared the price of goods and services as well as GDP and Purchasing Power Parity (PPP) Europe-wide.
Shiokawa hinted at a House of Councillors Budget Committee session that he favors a weaker yen, saying the dollar-yen exchange rate should reflect the purchasing power parity of Japan and the United States.
There are feedback mechanisms limiting this influence, however, which can be set out by analysing the implications of the uncovered interest parity condition for any departure of the exchange rate from its purchasing power parity value as a result of a temporary policy-induced change in the domestic interest rate.
They are interest rates, asset prices and purchasing power parity, the relative cost of everything from Big Macs to new clothes.