Jump to ContentJump to Main Navigation
Show Summary Details
More options …

The B.E. Journal of Theoretical Economics

Editor-in-Chief: Schipper, Burkhard

Ed. by Fong, Yuk-fai / Peeters, Ronald / Puzzello , Daniela / Rivas, Javier / Wenzelburger, Jan

2 Issues per year


IMPACT FACTOR 2016: 0.229
5-year IMPACT FACTOR: 0.271

CiteScore 2016: 0.30

SCImago Journal Rank (SJR) 2016: 0.398
Source Normalized Impact per Paper (SNIP) 2016: 0.232

Mathematical Citation Quotient (MCQ) 2016: 0.08

Online
ISSN
1935-1704
See all formats and pricing
More options …

Purchasing Power Parity with Strategic Markets

Konstantinos G. Papadopoulos
Published Online: 2008-06-02 | DOI: https://doi.org/10.2202/1935-1704.1418

The paper shows that market power may be an additional cause for the failure of PPP without making the usual assumption of segmentation of national markets. We construct an international multi-currency economy based on the strategic market game model with multiple trading posts, where, besides sellers, buyers have market power as well. Although arbitrage is costless, PPP may fail and exchange rates may be inconsistent at equilibrium due to agents' price effects in currency and commodity markets. We derive conditions on individual net trades and elasticities that result in PPP violation and exchange rate inconsistencies. A numerical example shows that when consistency fails, the ordering of prices is not well-defined. When the number of agents in the economy increases, PPP deviations and inconsistencies tend to zero, thus providing a strategic foundation of PPP theory. Furthermore, the size of PPP deviations is positively related to the number of currencies traded.

Keywords: purchasing power parity; strategic market game; triangular arbitrage; exchange rate inconsistency; trading post

About the article

Published Online: 2008-06-02


Citation Information: The B.E. Journal of Theoretical Economics, ISSN (Online) 1935-1704, DOI: https://doi.org/10.2202/1935-1704.1418.

Export Citation

©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston. Copyright Clearance Center

Comments (0)

Please log in or register to comment.
Log in