What are purchasing power parities (PPPs)?
Purchasing Power Parities (PPPs) are conversion rates that represent the number of currency units required to purchase goods and services in a given country equivalent to what could be bought with one unit of currency in the base country. For example, if the United States is the base country, then the PPP for Japan would be the amount of yen required to buy the same goods and services in Japan that you could buy for one dollar in the United States. PPPs are interspatial price indexes constructed for the purpose of comparing prices and volumes across countries. They are analogous to intertemporal price indexes used within a country to compare changes in prices and volumes over time, such as a consumer price index. Just as a consumer price index measures the cost of a representative basket of goods and services over time, PPPs can be used to measure the cost of a representative basket of goods and services across countries. The procedures are essentially the same: to price a representati
