Empirical tests prove that PPP is an accurate predictor of future exchange rates.

Question

Quizplus · Accepted Answer

Empirical tests have shown that PPP is not always an accurate predictor of future exchange rates. There are several factors that can cause deviations from PPP, such as transaction costs, differences in inflation rates, and political instability, among others. Therefore, investors should not rely solely on PPP to make investment decisions in the foreign exchange market.

Empirical Tests Prove That PPP Is an Accurate Predictor of Future