purchasing power parity exchange rate

Definitions

Economics

  • An exchange rate, R, calculated to yield absolute purchasing power parity. Useful for making comparisons of real values (wages, GDP) across countries with different currencies. Since absolute purchasing power parity theory is rarely correct, this contrasts with the nominal exchange rate, E. Calculated as R = EP*/P, where E is domestic currency per unit of foreign, P is the domestic price level, and P* is the foreign price level.
  • abbreviationPPP exchange rate
    (written as Purchasing power parity exchange rate)
  • purchasing power parity exchange rate
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