Definition

Purchasing Power Parity (PPP)

Purchasing power parity (PPP) theory, which attempts to quantify the inflation- exchange rate relationship.

It refers to the theory suggesting that exchange rates will adjust over time to reflect the differential in inflation rates in the two countries; in this way , the purchasing power of consumers when purchasing domestic goods will be the same as that when they purchase foreign goods.

In investopedia, "PPP an economic theory that estimates the amount of adjustment needed on the exchange rate between countries in order for the exchange to be equivalent to each currency's purchasing power."

Share it:  Cite

More from this Section

  • Mobilehome insurance
    Mobilehome insurance is a package policy that provides property insurance and personal ...
  • Revaluation
    Revaluation is an upward change in the official parity of an exchange rate from that which ...
  • Default
    Default is generally, failure to satisfy an obligation when due, or the occurrence of ...
  • State banks
    State banks is the state-chartered banks. ...
  • Money market
    Money market is a financial market in which only short-term debt instruments (generally ...