oussama94
05-28-2017, 23:52
PPP theory should
be used only for long-term fundamental analysis. The economic forces
behind PPP will eventually equalize the purchasing power of currencies.
However, this can take many years. A time horizon of 5 to 10 years is
typical.
PPP’s major weakness is that it assumes goods can be traded easily,
without regard to such things as tariffs, quotas, or taxes. For example,
when the United States announces new tariffs on imports the cost of domestic
manufactured goods goes up; but those increases will not be re-
flected in the U.S. PPP tables.
be used only for long-term fundamental analysis. The economic forces
behind PPP will eventually equalize the purchasing power of currencies.
However, this can take many years. A time horizon of 5 to 10 years is
typical.
PPP’s major weakness is that it assumes goods can be traded easily,
without regard to such things as tariffs, quotas, or taxes. For example,
when the United States announces new tariffs on imports the cost of domestic
manufactured goods goes up; but those increases will not be re-
flected in the U.S. PPP tables.