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  1. Purchasing Power Parity

    Linked via "PPP Puzzle"

    Empirical Challenges and Limitations
    Despite its theoretical elegance, the empirical success of $\text{PPP}$ is notoriously weak, particularly in the short run. Exchange rates can deviate significantly from their $\text{PPP}$-implied levels for extended periods, sometimes decades. This deviation is often called the "PPP Puzzle."
    Reasons for Deviation