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Theory of purchasing power parity

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Question

'In the assumed absence of transport costs and trade restrictions, perfect commodity arbitrage insures that each good is uniformly priced (in common currency units) throughout the world - the "law of one price" prevails'. In reality the law of one price is fragrantly and systematically violated by empirical data.

Discuss and critically evaluate this statement with reference to the theory and empirical evidence relating to the "law of one price" and the theory of purchasing(PPP).

Reference no: EM13131455

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