Purchasing Power Parity Theories (PPP)
Absolute Purchasing Power Parity Theory
Inputs
Preis level of representative good
P Country A (Home):
decimal
P Country B (Foreign):
decimal
e (actual):
decimal
Outputs
e (PPP):
decimal
Appreciation of:
text
Depreciation of:
text
If e unequal e (PPP): Arbitrage
Undervalued country:
text
Buy in:
text
Overvalued country:
text
Sell in:
text
Arbitrage gain:
decimal
Arbitrage gain:
decimal
Relative Purchasing Power Parity Theory
Inputs
in t1
e (actual):
decimal
in t2
π (Country A with LCU):
%
π (Country B with USD):
%
Outputs
e Rate of change:
%
e (PPP) in t2:
decimal
Appreciation of:
text
Depreciation of:
text
If e unequal e (PPP): Arbitrage
Undervalued country:
text
Buy in:
text
Overvalued country:
text
Sell in:
text