DEFINITION of 'Relative Purchase Power Parity'

An expansion of the purchase power parity theory, which suggests that prices in countries vary for the same product but that they differ by the same proportional rate over time. The reasons suggested for this price difference include taxes, shipping costs and differences in product quality.

BREAKING DOWN 'Relative Purchase Power Parity'

The relative purchase power parity condition suggests that countries with higher rates of inflation will have a devalued currency.

RELATED TERMS
  1. Uncovered Interest Rate Parity ...

    A parity condition stating that the difference in interest rates ...
  2. Parity Product

    A brand of good that has enough similarities with other brands ...
  3. Parity

    1. In general, a situation of equality. Parity can occur in many ...
  4. Parity Price

    When the price of an asset is directly linked to another price. ...
  5. Risk Parity

    A portfolio allocation strategy based on targeting risk levels ...
  6. Purchasing Power Parity - PPP

    An economic theory that estimates the amount of adjustment needed ...
Related Articles
  1. Insights

    Purchasing Power Parity (PPP)

    Purchasing Power Parity (PPP) compares different countries' currencies through a market "basket of goods" approach. Two currencies are in PPP when a market basket of goods (taking into account ...
  2. Investing

    Understanding Risk Parity

    Risk parity is an investment strategy that focuses on the allocation of risk across a portfolio.
  3. Investing

    Explaining Interest Rate Parity

    Interest rate parity exists when the expected nominal rates are the same for both domestic and foreign assets.
  4. Investing

    Explaining Uncovered Interest Rate Parity

    Uncovered interest rate parity is when the difference in interest rates between two nations is equal to the expected change in exchange rates.
  5. Investing

    How to Create a Risk Parity Portfolio

    Learn about how risk parity uses leverage to create equal exposure to risk among different asset classes in portfolio construction.
  6. Insights

    What Is Purchasing Power?

    Purchasing power expresses money’s value by defining the amount of goods or services it can buy.
  7. Trading

    Using Interest Rate Parity To Trade Forex

    Learn the basics of forward exchange rates and hedging strategies to understand interest rate parity.
  8. Investing

    What is Put-Call Parity?

    Put-call parity describes the relationship that must exist between European put and call options with the same expiration date and strike prices.
  9. Investing

    Hamburger Economics: The Big Mac Index

    In theory, PPP stands up much better than it does in reality. Find out how to evaluate currencies according to the price of a Big Mac.
RELATED FAQS
  1. Is risk parity a safe investment strategy?

    Learn how risk parity funds won't blow away the market, but will grow steadily over time by using the time-tested strategies ... Read Answer >>
  2. How important a metric is PPP (purchasing power parity?)

    Find out why calculations and comparisons of the purchasing power parity (PPP) in different countries can have a real impact ... Read Answer >>
  3. What are the nations with the highest PPP (purchasing power parity) with respect ...

    Learn which nations have the highest PPP with respect to the U.S. while reviewing the differences of calculating GDP in market ... Read Answer >>
  4. Why is PPP (purchasing power parity) controversial?

    Find out why economists disagree about the conceptual validity of the theory of purchasing power parity (PPP) to describe ... Read Answer >>
  5. What are the nations with the lowest PPP (purchasing power parity) with respect to ...

    Learn how purchasing power parity (PPP) is used to compare the price of goods between countries, and which countries have ... Read Answer >>
  6. What is the difference between GDP and GDP accounting for PPP (purchasing power parity)?

    Learn how to distinguish between absolute GDP and GDP after accounting for purchasing power parity, or PPP, when comparing ... Read Answer >>
Hot Definitions
  1. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  2. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  3. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  4. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  5. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  6. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
Trading Center