purchasing power parity


Also found in: Dictionary, Thesaurus, Legal, Acronyms, Encyclopedia, Wikipedia.
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 ?
A significantly better forecase is obtained by taking a weighted average of the current spot rate and the purchasing power parity value of the dollar.
Purchasing Power Parity (PPP) is based on the theory that in efficient markets goods have the same prices wherever they are purchased.
Chrissanthaki (1991) Purchasing Power Parity in the Short and Long Run: A Reappraisal of the Post-1973 Evidence.
It is at this point that it is possible to identify a growing acceptance of Cambridge monetary ideas of the 1920s, including a more sophisticated understanding of purchasing power parity. The international transmission of these ideas was no doubt influenced by a number of factors: a growing acceptance and usage of Cambridge monetary texts in university courses, Belshaw's return from Cambridge and Copland's advocacy of a Keynes-inspired policy package for Australian and New Zealand depression adjustment.
"Purchasing Power Parity in High Inflation Countries: Further Evidence," Journal of Macroeconomics, 16, Summer, pp.
(1992) A Survey of Recent Empirical Tests of the Purchasing Power Parity Hypothesis.
At the household level, purchasing power is strong and that is reflected in Belgiums purchasing power parity per capita of US$27,000.
The exchange rate at which purchasing power parity exists between Japan and the United States is around [yen] 170 to the dollar on a consumer price basis and around [yen] 125 on a producer price basis.
The ministry attributed the shrinkage in gap to a weaker yen and Japan's falling prices particularly in textile products that boosted the currency's purchasing power parity.
Purchasing power parity per capita of US$4,100 is characteristic of a nation in which discretionary income is very limited.
Chiles purchasing power parity per capita of US$10,220 ranks it first among Latin American nations and has also helped to make Chile a regional leader in per capita consumption of high-end goods and services.
Ghana's purchasing power parity of just over US$1,900 per annum reflects the marginality of the consumer base.