Purchasing power parity provides a better long-run indicator for future price changes than short-run indicator.

Question

Quizplus · Accepted Answer

The purchasing power parity theory suggests that over the long run, the exchange rates between two countries should equalize the prices of a basket of goods and services, reflecting the relative purchasing powers of the two currencies. Therefore, it provides a better long-run indicator for future price changes than a short-run indicator.

Purchasing Power Parity Provides a Better Long-Run Indicator for Future