[{"data":1,"prerenderedAt":-1},["ShallowReactive",2],{"detail-sidebar-cat-0-en-105":3,"doc-seo-324647-105":59,"doc-detail-324647-en":130},{"code":4,"msg":5,"data":6},0,"success",[7,13,18,23,28,33,38,43,48,51,55],{"id":8,"doc_module":4,"doc_module_name":9,"category_name":10,"show_sort_weight":11,"slug":12},1,"Document","Story & Novel",90,"story-novel",{"id":14,"doc_module":4,"doc_module_name":9,"category_name":15,"show_sort_weight":16,"slug":17},2,"Literature",80,"literature",{"id":19,"doc_module":4,"doc_module_name":9,"category_name":20,"show_sort_weight":21,"slug":22},4,"Exam",70,"exam",{"id":24,"doc_module":4,"doc_module_name":9,"category_name":25,"show_sort_weight":26,"slug":27},5,"Comic",60,"comic",{"id":29,"doc_module":4,"doc_module_name":9,"category_name":30,"show_sort_weight":31,"slug":32},6,"Technology",50,"technology",{"id":34,"doc_module":4,"doc_module_name":9,"category_name":35,"show_sort_weight":36,"slug":37},7,"Healthcare",40,"healthcare",{"id":39,"doc_module":4,"doc_module_name":9,"category_name":40,"show_sort_weight":41,"slug":42},8,"Research & Report",30,"research-report",{"id":44,"doc_module":4,"doc_module_name":9,"category_name":45,"show_sort_weight":46,"slug":47},9,"Religion & Spirituality",20,"religion-spirituality",{"id":46,"doc_module":4,"doc_module_name":9,"category_name":49,"show_sort_weight":46,"slug":50},"World Cup","world-cup",{"id":52,"doc_module":4,"doc_module_name":9,"category_name":53,"show_sort_weight":52,"slug":54},10,"Lifestyle","lifestyle",{"id":56,"doc_module":4,"doc_module_name":9,"category_name":57,"show_sort_weight":24,"slug":58},19,"General","general",{"code":4,"msg":60,"data":61},"ok",{"site_id":62,"language":63,"slug":64,"title":65,"keywords":66,"description":67,"schema_data":68,"social_meta":123,"head_meta":125,"extra_data":127,"updated_unix":129},105,"en","the-growing-significance-of-purchasing-power-parity","The Growing Significance of Purchasing Power Parity","","The text explains how purchasing power parity (PPP) relates to exchange rates and why it matters for analyzing trade issues. It describes PPP as an extension of the law of one price, where arbitrage should align prices of identical traded goods across countries when expressed in a common currency. It then argues that real-world deviations arise due to differences in product quality and retail services, as well as transaction costs and distribution frictions across borders, limiting how far prices converge.",{"@graph":69,"@context":122},[70,84,105],{"@type":71,"itemListElement":72},"BreadcrumbList",[73,77,79,82],{"item":74,"name":75,"@type":76,"position":8},"https://docshare.wps.com","Home","ListItem",{"item":78,"name":9,"@type":76,"position":14},"https://docshare.wps.com/document/",{"item":80,"name":40,"@type":76,"position":81},"https://docshare.wps.com/document/research-report/",3,{"item":83,"name":65,"@type":76,"position":19},"https://docshare.wps.com/document/the-growing-significance-of-purchasing-power-parity/324647/",{"url":83,"name":65,"@type":85,"image":86,"author":91,"headline":65,"publisher":94,"fileFormat":97,"inLanguage":63,"description":67,"dateModified":98,"datePublished":99,"encodingFormat":97,"isAccessibleForFree":100,"interactionStatistic":101},"DigitalDocument",{"url":87,"@type":88,"width":89,"height":90},"https://docshare.wps.com/thumbnails/the-growing-significance-of-purchasing-power-parity/324647.png","ImageObject",300,407,{"name":92,"@type":93},"Noah","Person",{"url":74,"name":95,"@type":96},"DocShare","Organization","application/pdf","2026-10-30","2026-09-21",true,{"@type":102,"interactionType":103,"userInteractionCount":29},"InteractionCounter",{"@type":104},"ViewAction",{"@type":106,"mainEntity":107},"FAQPage",[108,114,118],{"name":109,"@type":110,"acceptedAnswer":111},"What is purchasing power parity (PPP) in the context of exchange rates?","Question",{"text":112,"@type":113},"PPP is the idea that exchange rate changes should offset differences in price levels so that a basket of traded goods has comparable value across countries once foreign prices are converted to a common currency.","Answer",{"name":115,"@type":110,"acceptedAnswer":116},"How does the law of one price relate to PPP?",{"text":117,"@type":113},"The law of one price claims that arbitrage will prevent identical traded goods from having different prices in a common currency. PPP builds on this by asserting that exchange rates adjust to reflect changes in the prices of all traded goods between countries.",{"name":119,"@type":110,"acceptedAnswer":120},"Why might a single price fail in practice even for similar goods?",{"text":121,"@type":113},"Differences in quality and taste, variation in retail services, and transaction and distribution costs across borders can keep prices from converging, making deviations from the law of one price persistent.","https://schema.org",{"og:url":83,"og:type":124,"og:title":65,"og:site_name":95,"og:description":67},"article",{"robots":126,"canonical":83},"index,follow",{"doc_id":128,"site_id":62},324647,1790318380,{"code":4,"msg":5,"data":131},{"doc_id":128,"user_id":132,"nickname":92,"user_avatar":133,"doc_module":4,"category_id":39,"category_name":40,"doc_title":65,"doc_description":67,"doc_content":134,"file_id":135,"file_url":136,"file_type":137,"file_size":138,"view_count":29,"is_deleted":4,"is_public":8,"is_downloadable":8,"audit_status":8,"page_count":24,"language":139,"language_code":63,"site_id":62,"html_lang":63,"table_of_contents":140,"faqs":141,"seo_title":142,"seo_description":67,"update_tm":143,"read_time":144,"preview_page_count":4},8796095462418,"https://ap-avatar.wpscdn.com/avatar/80000253c1241d02b47?x-image-process=image/resize,m_fixed,w_180,h_180&k=1778826106357471780","by Ben Craig  \nUnder the skin of any internationaleconomist lies a deep-seated beliefinsome wariant of the PPP theory of theexchange rate.  \nRudiger Donbusch  \nand Paul Krugman(1976)  \ncountries met in Eeuador to discusswhether the Chinese currency was at\"the appropriate level.\"The underlyingtool that was used in the debate was theconcept of purchasing power parity(PPP),or the idea that the changes inexchange rates should balance the priceof a basket of traded goods in a foreigncountry so that it roughly equals theprice of the same basket in the UnitedStates,once the foreign prices are con-verted to American dollars at theexchange rate.This concept constitutes amajor pillar of the economies ofexchange rates.  \nIndeed,even the most naive tourist,when confronted with acup of coffeethat costs the equivalent ofS200 in some(admittedly hypothetical)foreign coun-try,would conclude one of three thingseither there is a scam,this is extremelygood coffee,or the foreign currencyinthat country is overvalued.At somepoint in the future the price of that cur-rency in terms of dollars can be expectedto fall.  \nFaith in PPP is so strong that manyeconomists regard it as consistent wthlong-term equilibrium in the exchangemarket,claiming that the dollar is over-valued or undervalued,as the case maybe,whenever the dollar deviates sub-stantially from its PPP value.Whileexchange rates do seem to revert to theirPPP values over long periods of time,they need not remain there.Large devia-tions from PPP are common and fully  \n# The Growing Significance of PurchasingPower Parity\n\nconsistent with equilibrium in the for-eign exchange market.  \nPPP is central to the theoretical under-pinnings of our analysis of many tradeissues,but how empirically supportableis it?Attempts to use PPP to predictfuture exchange rates have not been suc-cessful,suggesting that PPPmight notbe empirically relevant.Upuntil 2000.in fact.researchers could find scantempirical support for PPPeven in thelong run.Recent research has confirmedthatPPP is not so useful to forecasterstrying to predict short-term movementsin the exchange rate,but it has begun todemonstrate that PPP is quite tenable touse in economic models that analyzemedium-or long-range policies  \n## ■ The Law of One Price\n\nThe idea behind PPP evolved from thelaw ofone price,the idea that arbitragewill ensure that the same goud sold bothhere and abroad will have the same pricewhen that price is expressed in acommoncurrency.If the same pricewere not tohold,then someone could make a quickprofit by buying the good where it wascheaper and selling it where it was moreexpensive.The price of the good could beexpected to rise in the place where it wascheaper and fallwhere it was moreexpensive,and the foreign exchange ratewould also be expected to adjust to makegoods in the cheaper country relativelymore expensive.PPP is the mechanismthrough which the exchange rate adjuststo the aggregated changes in the prices oftradablegoods in two countries to reflectthe law ofone price.  \nAlthough the idea of the law of one priceseems reasonable enough,a quick lookat actual examples immediately pointsup why a single price might not apply inpractice.First,even fairly homogeneous  \nApril 1,2005  \nThe principle of purchasing powerparity is central to the theoreticalunderpinnings of the analysis of manytrade issues,but up until recently,there was little evidence that PPP heldin the long run.Current research haschanged that.The key to finding theevidence was realizing how to test for along-run effect given the fact thatexchange rates adjust to their long-run levels in a nonlinear way.  \ngoods differ.Coffee differs in qualityand taste;wheat and corn come in differ-ent varieties.Second,an item,even onewhich is rigorously controlled to be thesame good,is still different once it issold in different places.Consider the dif-ference between the same radio sold inHong Kong and Des Moines.The Chi-nese radio is sold in ashop that payshigher property fees,and i","cbCaivYxyrH8f5Pg","https://ap.wps.com/l/cbCaivYxyrH8f5Pg","pdf",1170439,"English","# The Growing Significance of Purchasing Power Parity\n## The Law of One Price","[{\"question\":\"What is purchasing power parity (PPP) in the context of exchange rates?\",\"answer\":\"PPP is the idea that exchange rate changes should offset differences in price levels so that a basket of traded goods has comparable value across countries once foreign prices are converted to a common currency.\"},{\"question\":\"How does the law of one price relate to PPP?\",\"answer\":\"The law of one price claims that arbitrage will prevent identical traded goods from having different prices in a common currency. PPP builds on this by asserting that exchange rates adjust to reflect changes in the prices of all traded goods between countries.\"},{\"question\":\"Why might a single price fail in practice even for similar goods?\",\"answer\":\"Differences in quality and taste, variation in retail services, and transaction and distribution costs across borders can keep prices from converging, making deviations from the law of one price persistent.\"}]","The Growing Significance of Purchasing Power Parity | PDF",1789968497,13]