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

  • Beggar-thy-neighbor
    Beggar-thy-neighbor is an international trade policy of competitive devaluations and increased ...
  • Shipper
    Shipper is the party (exporter or importer) who enters into a contract of carriage for ...
  • Bank profitability
    Bank profitability is an important indicator of bank performance, it represents the rate ...
  • Accelerated death benefits
    Accelerated death benefits mean a rider or benefit in a life insurance policy that allows ...
  • Principal Curtailment
    The practice of allocating cash to lower the current due principal amount of the first ...