Purchasing Power Parity

Last Updated on Wednesday, 7 April 2010 12:42 Written by admin Wednesday, 7 April 2010 12:42

Purchasing power parity (PPP) is a theory of long-term equilibrium exchange rates based on relative price levels of two countries. The idea originated with the School of Salamanca in the 16th century [1] and was developed in its modern form by Gustav Cassel in 1918.[2] The concept is founded on the law of one price; the idea that in absence of transaction costs, identical goods will have the same price in different markets.

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1. Implied PPP of the Dollar | Big Mac Index   |  Wednesday, 07 April 2010 at 12:48 pm

   [...] 11.5 Pesos in Argentina and the same Big Mac costs $3.57 in the United States, then according to Purchasing Power Parity (and using the Big Mac as a typical basket of goods) 11.5 Pesos should equal $3.57. If 11.5 [...]