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Purchasing Power Parity PPP

Posted by mjmedlock on May 24, 2012 in international economics |

Purchasing Power Parity – If we lived in a world of truly efficient markets then the price of a basket of goods would be the same in all countries. However, anyone who has taken a trip abroad knows that this is not the case. In fact prices for identical items vary quite widely across nations. […]

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Inflation rate expectations and exchange rates

Posted by mjmedlock on July 8, 2011 in international economics |

Inflation affects the future purchasing power of any currency. If you have inflation in the Eurozone then €1 today will buy more than €1 in the future. In other words the currency becomes less valuable. If two currencies experience different levels of inflation then their purchasing powers will deviate over time, because one currency loses […]

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The Law of One Price

Posted by mjmedlock on April 5, 2011 in economics |

The law of one price states that any good must have a single price in all markets. If it does not, then there will be opportunities for arbitrage. However, arbitrage opportunities can only last a short time as markets will quickly work to cancel out the profit from arbitrage. Example of law of one price […]

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