A Note on Purchasing Power Parity

A Note on Purchasing Power Parity

The validity of the theory of purchasing power parity (PPP) has been argued for a long time. Researches on the validity of PPP are continuously challenged. Generally speaking, PPP seems to hold in the long run, but does not hold in the short run because of the non-tradable goods or trade barriers. From this fact, we can infer that PPP might play a role in determining exchange rate. At this time, it should be pointed out that many researches have been done on PPP. There is a need for previous literature to be arranged to help future researchers. The fact is that some literature used time series data while others used panel data. Specific econometric methods have been used to find significant results. This note attempts to contribute to anticipating exchange rate.