Purchasing power parity exchange rate

 

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Purchasing power parity exchange rate

An 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.



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Purchasing power parity

Purchasing power parity

1. 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.


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.


Absolute form of purchasing power parity

Absolute form of purchasing power parity

A 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 of the dollar

Purchasing power of the dollar

The amount of goods and services that can be exchanged for a dollar as compared with amount of a previous time period.


Relative form of purchasing power parity

Relative form of purchasing power parity

Theory that the rate of change in the prices of products should be somewhat similar, but not absolutely the same when measured in a common currency, as long as transportation costs and trade barriers are unchanged.


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