The purchasing-power-parity (PPP) theory involves the ratio of two countries' price levels (absolute PPP) or price indices times a base period exchange rate (relative PPP) as the most important variable determining the exchange rate, but it allows both for other explanatory variables and for...

The productivity bias in the purchasing-power-parity (PPP) theory of exchange rates asserts that the ratio of PPP to the exchange rate (number of units of domestic currency per unit of the standard currency) is an increasing function of a country's income level. In this paper, the...