International Finance, Does the purchase power parity hold?

Abstract

This paper will discuss if the Purchasing Power Parity holds in the international market or not. The general idea behind purchasing power parity is that a unit of currency should be able to buy the same basket of goods in one country as an equivalent amount of foreign currency can buy in another country at the current exchange rate, ensuring that the purchasing power of the unit of currency is equal in both economies. PPP research can aid not only economists in understanding exchange rate behavior, but also monetary policymakers in establishing sound exchange rate policies. Purchasing power parity is a prominent macroeconomic study statistic for comparing economic productivity and living standards between countries (PPP). PPP is an economic theory that uses a "basket of goods" technique to compare the currencies of different countries. We will be using different articles and research papers to evaluate the results of our topic” Does the purchasing power parity holds? – international market”. Different methodologies including GEKS (Gini-Éltető-Köves-Szulc) will be explored to assess the viability of Purchasing Power Parity in international markets. Predominantly, the paper will use the examples of China, United Kingdom and Kingdom of Saudi Arabia as samples for the application of the methodologies chosen for experiment.