Disadvantages And Limitations Of CPI

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The whole research was based on the individual secondary research. All the statistical data were obtained from the dataset of official statistics. The CPI in Japan and the Indian CPI were drawn from the World Bank Group and the nominal exchange rate came from the IMF. For collecting these data, it is no doubt that the secondary research method was the feasible way in comparison with the primary research. However, there were three limitations of the entire research. The first source of weakness in this study that might affect the measurements of PPP was the data. The paper only considered the CPI as the independent variable and did not take into account other price index, the result of model evaluation therefore may not be accurate and comprehensive. …show more content…
On the basis of the statement above, the following recommendations could be used for reference to further investigate the effectiveness of PPP in future researches.

Firstly, since the exchange rate involves the matters about international transactions and other economic aspects, resulting in that the trade protectionism hampers the convertibility of currencies. Furthermore, the system of monetary and foreign exchange control differs from country to country. Hence, it is difficult to measure the degree of foreign exchange control, and they are unable to be quantified at the same time. It is suggested that more variables, which can be quantified, should be conceived and factored into the coming studies. In addition to the variable, more investigations are required to carry out the PPP studies based on the non-linear economic model since our empirical research on the effectiveness of PPP is generally built on the linear mathematical model. Consequently, the comparative studies of linear and non-linear PPP model ought to be advocating for future
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However, several relevant researches have shown that selecting different indexes will lead to different outcomes of the PPP examinations, which implies that there is still some dispute about choosing which price index to test. Concerning this, a further investigation with more concentrate on the choice of the price index is therefore suggested. In future studies about the PPP theory, it is advised that kinds of indexes such as the producer price index, the gross domestic product deflator can be used simultaneously along with CPI to measure the validity of

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