Purchasing Power Parity Model ( PPP ) Essay by The Research Group

Purchasing Power Parity Model ( PPP )
Discusses the validity of the PPP hypothesis.
# 24803 | 1,125 words | 2 sources | 2002 | US
Published on Mar 16, 2003 in Business (Marketing) , Business (Consumer Behavior)


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Description:

Discusses the validity of the PPP hypothesis. Theory of PPP. Underlying basis of the PPP model. Rates of inflation and long-range exchange rate changes. Assumptions of the PPP model. Problems associated with use of the model. Contends that long-run analyses tend to support the PPP hypothesis, but not short-run analyses.

From the Paper:

"THE PURCHASING POWER PARITY MODEL: COMPARING MacDONALD WITH ZHOU AND MAHDAVI

Introduction
The literature contains mixed results relative to the testing of the validity of the purchasing power parity (PPP) hypothesis. Few studies have found evidence to support the theory in the short run, while the results of tests of the PPP hypothesis based on long-run data produced mixed outcomes, with a majority of the studies supporting the hypothesis for long-run projections. The studies with opposing results are the MacDonald (1995) study, which supports the PPP hypothesis for long-run projections, and the Zhou and Mahdavi (1996), which does not support the PPP hypothesis for long-term projections. This paper compares and discusses these two studies."

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