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Deviations from purchasing power parity

Explain about deviations from purchasing power parity for countries competitive positions within the world market.

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In case changes within the exchange rate suit the PPP, competitive positions of countries will remain unchanged following the exchange rate changes. On the other hand, changes of exchange rate will have an effect over the comparative competitiveness of the countries. In case currency of the country improves (depreciates) by more rather than is warranted by PPP, this will hurt (strengthen) the competitive position of the country in world market.

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