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

  • European terms
    European terms— foreign exchange quotations for the U.S. dollar, expressed as the number ...
  • Random walk
    Random walk is the movements of a variable whose future changes cannot be predicted (are ...
  • Capital Account
    Capital account is a section of the balance of payments. Under the revised format of the ...
  • Balloon Payment
    Balloon Payment is a large payment that may be charged at the end of a loan or lease. ...
  • Noninterest margin
    Noninterest margin is the spread between noninterest income and noninterest expenses of ...