Among the reasons that purchasing power parity (PPP) does not consistently occur are:

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All of the above are reasons why PPP may not consistently occur. Interest rate differentials can affect exchange rates as investors seek higher returns in countries with higher interest rates, which can cause the exchange rate to deviate from the PPP level. National income differentials and government controls can also affect exchange rates, as higher income countries may have stronger currencies and government intervention in the currency market can cause exchange rates to deviate from their PPP levels. Additionally, if there are no substitutable goods available, supply and demand may not adjust to bring exchange rates to their PPP levels.

Among the Reasons That Purchasing Power Parity (PPP) Does Not