Purchasing Power Parities

Purchasing power parities (PPPs) are indicators of price level differences across countries.

They indicate how many currency units a particular quantity of goods and services costs in different countries.

History and Intrpeatation
The idea originated with the School of Salamanca in the 16th century and was developed in its modern form by Gustav Cassel in 1918. The concept is based on the law of one price, where in the absence of transaction costs and official trade barriers, identical goods will have the same price in different markets when the prices are expressed in the same currency.

Another interpretation is that the difference in the rate of change in prices at home and abroad—the difference in the inflation rates—is equal to the percentage depreciation or appreciation of the exchange rate.

Read more

 * Introduction on purchasing power parities (PPPs) (Eurostat)
 * Glossary:Purchasing power parities (PPPs) Eurostat
 * Purchasing power parity (Wikipedia)
 * Relative purchasing power parity (Wikipedia)