Question

Discuss why PPP should hold in the long run. Also, why is it that PPP often does not hold up empirically even over long periods of time.

Answer 1

In the long run, people are free to trade and price of the goods can easily adjust in the market, so if say burgers are cheaper in the US and costlier in Japan then these two nations will trade to the point were the price of Burger will be same in both the market.

This doesn't happen or the PPP doesn't hold in the long run because trade is not allowed freely, price of the things that are not traded like a haircut or other services etc prevent the long run PPP.