Purchasing power parity

• Absolute purchasing power parity - the general level of prices when converted to a common currency will be the same in every country
• Consumer price index as the weighted average of individual product prices , with the weights being determined by expenditure shares
• Ppp is an important benchmark for the analysis of exchange rate

  No country will have a general price advantage over others
• PPP is a theory of exchange rate determination
• The real exchange rate is the price of foreign relative to domestic goods and services
• Wages in the traded goods sectors will rise more rapidly than in the non-traded sector