When might it be a bad idea to use ppp theory in this way

Reference no: EM131065795

Large-scale wars typically bring a suspension of international trading and ?nancial activities. Exchange rates lose much of their relevance under these conditions, but once the war is over, governments wishing to ?x exchange rates face the problem of deciding what the new rates should be. The PPP theory has often been applied to this problem of postwar exchange rate realignment. Imagine that you are a British Chancellor of the Exchequer and that World War I has just ended. Explain how you would ?gure out the dollar/pound exchange rate implied by PPP. When might it be a bad idea to use the PPP theory in this way?

Reference no: EM131065795

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When might it be a bad idea to use ppp theory in this way : When might it be a bad idea to use the PPP theory in this way?

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