Country Specific Purchasing Power Parities

Purchasing power parity is the exchange rate that makes a given basket of goods equally expensive at home and abroad. Due to varying consumer preferences, the appropriate value of a currency appears high when the goods basket of this country is used and as low when the goods basket of another country is used. The diagrams show the purchasing power parities for a German, a foreign (where available) and a standardised OECD goods basket. The areas near the OECD purchasing power parity and between the foreign and the German purchasing power parities indicate a normal, long-term situation for the exchange rate, from which short- and medium-term deviations are quite possible due to the international flow of capital. The diagrams show the value of a euro in terms of the respective foreign currency. Thus, for example, in the diagram for Denmark the low value of the exchange rate indicates a high value of the Danish crown in terms of the euro and a low value of the euro in terms of Danish crowns.