purchase power partity solved, question, purchase, one, power

parott

can purchase power partity be S * ( 1+ Inflation on F)/ ( 1+Inflation on D )
one question solved based on the above, when to use it like this ???

19831985

The way I solve it is



$/Pound = $ is domestic Pound is foreign


$/pound = spot x (1+inflation $)/(1+inflation pound)


The only time i use foreign in the numerator is when calculating real exchange rate (i.e using Price Levels)

I hope this helps.