The Authors State That Empirical Tests of Purchasing Power Parity

question 39

Essay

The authors state that empirical tests of purchasing power parity "have, for the most part, not proved PPP to be accurate in predicting future exchange rates." The authors then state that PPP does hold up reasonably well in two situations. What are some reasons why PPP does not accurately predict future exchange rates, and under what conditions might we reasonably expect PPP to hold?

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Definitions:

Depression

A psychological disorder featuring a constant state of depression or a diminished interest in activities, leading to substantial difficulties in daily operations.

Suicide Risk

The likelihood that an individual will attempt to take their own life, often assessed in clinical settings to prevent self-harm.

Electroconvulsive Therapy

A medical treatment involving small electric currents passed through the brain, intentionally triggering a brief seizure to treat certain mental disorders.

Adjunctive Therapy

An additional treatment used together with the primary treatment to enhance its effectiveness.