Question

What is the PPP (purchasing power parity )puzzle?

What is the PPP (purchasing power parity )puzzle?

Homework Answers

Answer #1

The 'purchasing power parity puzzle’ is the name of the book written by economist Kenneth Roggof. In simple words, the purchasing power parity puzzle refers to the difficulty of reconciliation of a highly volatile short-term real exchange rates with a very slow rate of mean reversion.

Many economists are of the opinion that the long-term exchange rate is driven by purchasing power parity (PPP). However, various practical models have demonstrated that these two rates converge at a very slow rate. This is the purchasing power parity puzzle.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Explain the Basic Logic of Purchasing-Power Parity (PPP) and its affect on exchange rates?
Explain the Basic Logic of Purchasing-Power Parity (PPP) and its affect on exchange rates?
Explain why, in order to preserve the purchasing power parity (PPP), a country with a higher...
Explain why, in order to preserve the purchasing power parity (PPP), a country with a higher inflation should have its currency depreciate against currencies of countries with lower inflation, all else equal (including real rates of interest in different countries).
explain the difference between the real exchange rate and the purchasing power parity(PPP) exchange rate, and...
explain the difference between the real exchange rate and the purchasing power parity(PPP) exchange rate, and discuss a situation in which you would use each of these different exchange rates.
Purchasing power parity (PPP) is defined to be: a) The currency exchange rate between Country A...
Purchasing power parity (PPP) is defined to be: a) The currency exchange rate between Country A and Country B b) The price of a basket of goods in a particular country c) The ratio of the price of a basket of goods in Country A to the price of the same basket in Country B d) None of the above
Explain why, in order to preserve the purchasing power parity (PPP), a country with a higher...
Explain why, in order to preserve the purchasing power parity (PPP), a country with a higher inflation should have its currency depreciate against currencies of countries with lower inflation, all else equal (including real rates of interest in different countries). 3 sentences
1.   What is the theory of purchasing power parity? Why would purchasing power parity hold? What...
1.   What is the theory of purchasing power parity? Why would purchasing power parity hold? What is the evidence on purchasing power parity: does it hold or not? If there are deviations from purchasing power parity, why are there deviations? Please provide any evidence or research available on these issues. Please provide reference websites
The empirical data on real exchange rates shows that the relative purchasing power parity (PPP) hypothesis...
The empirical data on real exchange rates shows that the relative purchasing power parity (PPP) hypothesis a. always holds. b. generally does not hold. c. holds in advanced countries. d. holds among countries that share a common currency.
Discuss the difference between absolute and relative purchasing power parity (PPP) using the dollar per euro...
Discuss the difference between absolute and relative purchasing power parity (PPP) using the dollar per euro exchange rate and starting at $1.40/€1 and simple numerical examples. To illustrate absolute PPP concept use a price of the iphone in dollars (you make up the price in dollars) and euros (you make up the price in euros) and discuss what happens of the exchange rate deviates from the absolute PPP rate.
Purchasing power parity (PPP) a. Is similar to the law of one price b. States that...
Purchasing power parity (PPP) a. Is similar to the law of one price b. States that the prices of baskets of goods (price levels) will tend to be the same across borders in the long run, allowing for exchange rates c. Requires that, under fixed exchange rates, price levels adjust in the different markets to achieve comparability across borders (allowing for exchange rates) d. All of the above
consider the importance of Purchasing Power Parity within the global market. PPP provides a baseline forecast...
consider the importance of Purchasing Power Parity within the global market. PPP provides a baseline forecast of future exchange rates that is usually considered whenever it is necessary to forecast future cash flows in different currencies, especially when inflation rates differ across these countries. How has coca cola leveraged PPP in their favor? Give some background information on your organization and then provide a thorough response to the question.