Purchasing power parity and the equilibrium exchange rate
AbstractPaper inquires into historical development of key theoretical concepts related to purchasing power parity in 20th century. It presents theories which explain relation between price level, labor productivity and exchange rate. These theories explain the process of how the long-run equilibrium exchange rate is being achieved. On the other hand it elaborates on short-run exchange rate deviations. As the key factor which cause the deviations identified in the paper is presence of the prices of non-tradable goods in price indexes. Proposed is a case study which clarifies the process of equilibrium exchange rate achieving to emphasis some of the theoretical conclusions made in paper. Verification of theoretical conclusions is sketched out through the Big Mac Index statistics. Statistics is to prove proposed relations between price levels and exchange rates in different countries and is to verify the relevance of theoretical conclusions about long-run equilibrium of exchange rates.
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Bibliographic InfoArticle provided by University of Economics, Prague in its journal Politická ekonomie.
Volume (Year): 2009 (2009)
Issue (Month): 3 ()
Postal: Redakce Politické ekonomie, Vysoká škola ekonomická, nám. W. Churchilla 4, 130 67 Praha 3
Find related papers by JEL classification:
- F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-
- N25 - Economic History - - Financial Markets and Institutions - - - Asia including Middle East
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