Absolute Purchasing Power Parity

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  276946 Interest rate parity/purchasing power parity Does interest rate parity imply that interest rates are the same in all countries? Why might purchasing power parity fail to hold?

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  But initially, we must describe the theory in brief, like this// Purchasing Power Parity Theory According to the theory of purchasing power parity (PPP), when the purchasing power of two countries is same, then there is equilibrium in exchange

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  There are two situations in which PPP hypothesis may hold true: When the purchasing power of a unit of currency in the domestic economy is equal to the purchasing power of a unit of currency in the foreign economy, absolute purchasing power parity holds

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  Country A has inflation of (A) = 10% Country B has inflation of (B) = 5% To which value the nominal exchange rate turns itself at time t = 1, assuming we have the absolute (Purchasing Power Parity)?

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  The Purchasing Power Parity is established in the long run. Some economists have taken time periods of between 4 to 10 years for equalizing the purchasing power parity (Madura, J 2006).