Purchasing Power Parity implies that exchange-rate depreciation is caused by differences in inflation rates across countries.

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Purchasing Power Parity (PPP) theory suggests that in the long run, exchange rates should adjust to equalize the price of identical goods and services in different countries. Therefore, if one country has a higher inflation rate than another, its currency is expected to depreciate in order to maintain the parity in purchasing power.

Purchasing Power Parity Implies That Exchange-Rate Depreciation Is Caused by Differences