Disadvantages And Limitations Of CPI
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 …show more content…
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