The purchasing power parity theory is useful in making ____ predictions about exchange rates and their fluctuations.

Question

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The purchasing power parity theory suggests that exchange rates should adjust to reflect the relative inflation rates of two countries over the long-run. Therefore, it is useful in making long-run predictions about exchange rates and their fluctuations. It is less useful in the short-run and intermediate-run because other factors, such as changes in interest rates and market sentiment, can have a greater impact on exchange rates over these time periods.

The Purchasing Power Parity Theory Is Useful in Making ____