An equilibrium exchange rate such that two currencies purchase the same amount of goods and services in the two economies. This theory, first suggested by the MERCANTILISTS, then eloquently expressed by CASSEL in 1916, asserts that monetary flows would...

The purchasing power parity (PPP) theory uses the long-term equilibrium exchange rate of two currencies to equalize their purchasing power. Developed by Gustav Cassel in 1920, it is based on the law of one price: the idea that, in an efficient market,...