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Is there a rule of thumb for absolute purchasing power parity to hold?

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  • Zhibai Zhang

Abstract

The validity of absolute purchasing power parity (APPP) between the pairs of 55 representative countries, along with their pooled data, is examined empirically. A rule of thumb for the validity of APPP is tentatively proposed. That is, for a pair of countries exhibiting the Penn effect, when the GDP per capita of one country is less than half of the other’s, it is very likely that APPP does not hold. However, when the GDP per capita of one country is greater than half of the other’s, there is a certain possibility that APPP holds.

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  • Zhibai Zhang, 2024. "Is there a rule of thumb for absolute purchasing power parity to hold?," Applied Economics, Taylor & Francis Journals, vol. 56(7), pages 851-860, February.
    • Handle: RePEc:taf:applec:v:56:y:2024:i:7:p:851-860
    DOI: 10.1080/00036846.2023.2291098
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