Purchasing Power Parity Assignment | Homework For You

[Purchasing Power Parity] The theory of PPP says that the long-run equilibrium value of the actual exchange rate (E)) will be the PPP exchange rate (E ppp). According to the theory, at any point in time, E will probably not equal E ppp. However, given enough time, the theory of PPP says that E should converge toward E ppp. Homework For YouThat is, E ppp serves as the long-run equilibrium value for E. This is why we can also use E ppp to find out whether a currency is overvalued or undervalued. Domestic currency is overvalued and foreign currency is undervalued if E ppp /E > 1. Foreign currency is overvalued and domestic currency is undervalued if E ppp/E. Get Finance homework help today

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