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Purchasing Power Parity

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The New Palgrave Dictionary of Economics

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Abstract

Purchasing power parity (PPP) is a theory of exchange rate determination. It asserts (in the most common form) that the exchange rate change between two currencies over any period of time is determined by the change in the two countries’ relative price levels. Because the theory singles out price level changes as the overriding determinant of exchange rate movements, it has also been called the ‘inflation theory of exchange rates’.

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Authors
  1. Lucio Sarno
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Editor information

Steven N. Durlauf Lawrence E. Blume

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© 2008 Palgrave Macmillan, a division of Macmillan Publishers Limited

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Sarno, L. (2008). Purchasing Power Parity. In: Durlauf, S.N., Blume, L.E. (eds) The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-58802-2_1367

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  • DOI: https://doi.org/10.1007/978-1-349-58802-2_1367

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  • Publisher Name: Palgrave Macmillan, London

  • Print ISBN: 978-0-333-78676-5

  • Online ISBN: 978-1-349-58802-2

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