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Purchasing power parity exchange rate |
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Purchasing power parity exchange rateAn exchange rate calculated to yield absolute purchasing power parity. Useful for making comparisons of real values (wages, GDP) across countries with different currencies. Since the purchasing power parity theory is rarely correct, this contrasts with the nominal exchange rate.Similar MatchesPurchasing powerPurchasing powerThe amount of goods that money will buy, usually measured (inversely) by the CPI. Absolute form of purchasing power parityAbsolute form of purchasing power parityA theory that prices of products of two different countries should be equal when measured by a common currency. Also called the "law of one price." Purchasing power parityPurchasing power parityThe notion that the ratio between domestic and foreign price levels should equal the equilibrium exchange rate between domestic and foreign currencies. Purchasing powerPurchasing powerThe amount of goods and services which can be purchased by a given unit of currency after taking into account the effect of inflation. Purchasing power can be assessed by tracking an index of consumer prices and comparing different periods, for example the early 1990s and the current time. Inflation will result in reduced purchasing power over a period of time. Purchasing power parityPurchasing power parity1. The equality of the prices of a bundle of goods (usually the CPI) in two countries when valued at the prevailing exchange rate. Called absolute PPP. 2. The equality of the rates of change over time in the prices of a bundle of goods in two countries when valued at the prevailing exchange rate. Called relative PPP. Implies that the rate of depreciation of a currency must equal the difference between its inflation rate and the inflation rate in the currency to which it is being compared. Further SuggestionsPurchasing powerPurchasing power risk Purchasing power of the dollar Relative form of purchasing power parity Purchasing power parity theory |
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