Purchasing Power Parity and Black Markets

Abstract

Purchasing Power Parity (PPP) is one of the oldest and most enduring doctrines in international finance.' While PPP has been examined predominantly in an academic setting, it also has many practical applications for international financial managers. It may, for example, be viewed as a simple and inexpensive way to forecast long-run exchange rates. For the heavily traded currencies, of course, PPP represents only one among many available approaches. However, for some of the less traded currencies, both the number and reliability of alternative forecasting methods is greatly reduced. Therefore, the importance of PPP as a forecasting method is increased. PPP is also very im-

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