The triangular purchasing power parity hypothesis: A comment

Alan King

The World Economy, 2021, vol. 44, issue 3, 837-848

Abstract: The recently proposed triangular purchasing power parity (PPP) hypothesis posits that, in a world dominated by the United States, China and Euroland, the exchange rate between the US dollar and the euro will be a function of the Euroland price level relative to China’s price level. Contrary to conventional PPP, the US price level plays no role. We show that the theory underlying triangular PPP is flawed and that it is no more than a simple transformation of the conventional PPP relationship. Moreover, some of the empirical evidence presented in support of the triangular PPP actually refutes one of its central ideas.

Date: 2021
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