Purchasing Power Parity (PPP) Calculator

Commodity Unit Price in US (\$)

Commodity Unit Price in Foreign Country

Exchange Rate ---

Foreign Currency per \$

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Exchange Rate ---

\$ per Foreign Currency

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Notes:

Purchasing power parity (PPP) is an economic theory that compares different countries' currencies through a "basket of goods" approach. According to this concept, two currencies are in equilibrium or at par when a basket of goods (taking into account the exchange rate) is priced the same in both countries. Closely related to PPP is the law of one price (LOOP), which is an economic theory that predicts that after accounting for differences in interest rates and exchange rates, the cost of something in country X should be the same as that in country Y in real terms.

How to Calculate Purchasing Power Parity

The relative version of PPP is calculated with the following formula:

Where:

Such that

# P\$ = P¥ * Spot Rate \$/¥

S represents the exchange rate of currency 1 to currency 2

P1 represents the cost of good X in currency 1

P2 represents the cost of good X in currency 2

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