Theory of purchasing power parity (PPA): Contributions of gustav cassel and his vision of the equilibrium exchange rate

Abstract:

Until the 1920s the mainstream of economic science in Sweden was represented by the work of Cassel. It was the first to express Purchasing Power Parity (PPP), in terms of average prices, giving it an operational character to apply it empirically. For this reason, this research focused on analyzing Cassel’s contribution in the theoretical construction of Purchasing Power Parity and his vision on the equilibrium exchange rate. From a documentary perspective, key aspects of his work “Social Economy Theory” stand out, to conclude on the particular way in which Purchasing Power Parity will be assumed, which depends on the exchange rate regime in which it is located. When the exchange rate is flexible, the theory of Purchasing Power Parity in its absolute version is shown as a theory that allows determining the spot exchange rate; when it is fixed, it becomes a theory that attempts to explain the international transmission of inflation. The conceptual method that Gustav Cassel describes in “Theory of Social Economy is related to: the general characteristics of the economic system; problems related to the nature of the goods that are the object of the economic activity; the actions of economic agents according to the principle of scarcity; while introducing the concept of purchasing power parity, later studied as Purchasing Power Parity.

Año de publicación:

2020

Keywords:

• Economic system
• Stockholm school
• Sweden, equilibrium exchange rate
• Purchasing power parity

Fuente:

scopus