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.

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 ?
Smithin, John (2002/2003) Interest Parity, Purchasing Power Parity, 'Risk Premia' and Keynesian Economic Analysis.
1991: Does long-run purchasing power parity hold within the European monetary system?
These outcome variables include Compensation Levels, Foreign Direct Investment Inflows (Log), Gross Domestic Product per Capita at Purchasing Power Parity, Gross Domestic Product per Capita, Labour Productivity at Purchasing Power Parity, Labour Productivity, Overall Productivity Growth, Overall Productivity, and Real Gross Domestic Product Growth.
The purchasing power parity theory serve as equilibrium condition in the theory of exchange rate determination and in exchange rate policy.
But I think we should adopt policies so the rate moves closer to purchasing power parity.
Uncovered Interest Parity and Purchasing Power Parity
For his comparison to have any validity, he would have to find a source that would convert 1990 per-pupil expenditures using currency exchange rates based on purchasing power parity.
This concept will be tested for the Canadian dollar by seeing whether adding information about the purchasing power parity value of the exchange rate can improve forecasts.
All estimates of gross domestic product and components of GDP are done in terms of constant purchasing power parity in a benchmark year (2007) that is one year before the base year (2008) used in this study.
Once the final products achieved under the project, the country will be able to join the next round of the International Comparison Program (ICP), which in turn will allow you to have direct estimates of Gross Domestic Product (GDP) in terms of purchasing power parity (PPP).
Qian Yingyi, the dean of the School of Economics and Management (SEM) of the Tsinghua University, said that China would become the world's largest economy "almost surely before 2020 in terms of purchasing power parity (PPP)".
On a purchasing power parity basis, GDP per capita in Asia would rise to $38,600, compared with the projected 2050 global average of $36,600.