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PURCHASINGPOWER
PARITY
CRITICISMS FOR PPP
Comparison of prices
without regard to
quality is unrealistic
Price index number
includes the price of all
commodities and services
including those which are
not internationally
traded
Cost of
Transportation
is ignored
No trade barriers-
is an unrealistic
assumption
Ignores the impact
of changes in the
exchange rates on
the prices
Doesn’t explain the
demand for supply
in foreign exchange
No explanation of
short-term
changes in
exchange rates
Goes conflicting
to general
experience

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PURCHASING POWER PARITY

  • 2.
  • 3.
  • 4.
  • 5.
  • 6.
  • 7. CRITICISMS FOR PPP Comparison of prices without regard to quality is unrealistic Price index number includes the price of all commodities and services including those which are not internationally traded Cost of Transportation is ignored No trade barriers- is an unrealistic assumption Ignores the impact of changes in the exchange rates on the prices Doesn’t explain the demand for supply in foreign exchange No explanation of short-term changes in exchange rates Goes conflicting to general experience