Research and Enlightenment of Purchasing Power Parity Test

Abstract

Purchasing Power Parity (PPP) is the cornerstone of many theoretical models in international finance. The PPP test is of great importance to market participants, central banks and policy makers. This paper reviews the relevant literature on the validity test of PPP in recent years: involving micro and macro directions, which are embodied in four aspects: empirical, model, exchange rate and evaluation. Although the research and application of PPP test have made great progress, there are still some problems and challenges. With the continuous development of the global economy and the improvement of data availability, the future research on PPP test will be more in-depth and comprehensive.