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Implication of deviations by purchasing power parity

Describe the implications of the deviations through the purchasing power parity for countries’ competitive positions in the world market.

If exchange rate changes suit PPP, competitive positions of countries will not affected following exchange rate changes. Or else, exchange rate changes will affect relative competitiveness of countries. If country’s currency appreciates (depreciates) by more than is warranted by PPP that will hurt (strengthen) the country’s competitive position in the world market.

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