Purchasing Power Parity

EXECUTIVE SUMMARY: There has been a long rest controversy among the economist about the validity of PPP ( purchase world-beater para) in the long run. The parity reveals that prices in two contrasting economies should be identical to each other when they expressed in terms of the same silver. It is a central building settlement in the monetary models of convince target determination. One of the roughly common practices, to test the validity of PPP is through whole root test of real exchange rate. In this paper social unit root test has been done based on the data on Bangladesh and its major trading partner India, to live whether exchange rate has unit root or not. It has been put in out that the PPP holds i.e. real exchange is not mode stationary in the long run, at a sealed signifi dissolvece level. So the null hypothesis that real exchange root has unit root has been rejected. This paper should be seen as an exploratory study on this subject. Introduction The Purchasing Power Parity (PPP) theory, sometimes called the inflation theory of exchange pass judgment can be traced back to the Salamanca school in sixteenth century Spain, and in the writing of Gerrard de Malynes which appeared in 1601 in England.

Though Keynes gave credit to David Ricardo for the innovation of PPP, Swedish economist Gustav Cassel was first to name the theory PPP. afterward World War I, Cassel became the outstanding protagonist of the theory. He employ it in order to estimate the equilibrium exchange rates at which nations could return to the gold standard after the flapping of inter subject trade and the large changes in relative good prices in the various nations caused by World War 1. Purchasing power parity (PPP) exchange rate is the exchange rate between two currencies that would equate the two relevant national price levels if expressed in a common currency at that rate, so that the purchasing power of a unit of one currency would be the same in both economies The question of whether Purchasing Power... If you want to get a replete(p) essay, order it on our website: Orderessay

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