Kaufkraftparität

Kaufkraftparität, often abbreviated as KKP, is an economic theory that suggests that in the long run, exchange rates between currencies should adjust to equalize the prices of an identical basket of goods and services in any two countries. Essentially, it posits that the purchasing power of different currencies should be the same when converted. This means that if a particular item costs 10 US dollars in the United States, the equivalent amount of euros in Germany should be able to buy that same item, after accounting for the exchange rate.

The theory is based on the law of one price, which states that in an efficient market, identical goods sold in different locations should trade at the same price when expressed in a common currency, assuming no transportation costs or trade barriers. KKP is a broader application of this concept to a whole basket of goods. If an exchange rate deviates significantly from the KKP rate, it implies that one currency is overvalued and the other is undervalued, creating opportunities for arbitrage.

In practice, KKP is often used to compare the economic productivity and living standards of different countries. For instance, Gross Domestic Product (GDP) figures are frequently adjusted for KKP to provide a more accurate reflection of the actual volume of goods and services produced and consumed within a country, rather than being distorted by fluctuating nominal exchange rates. While KKP is a useful theoretical benchmark, real-world exchange rates are influenced by many other factors, including trade imbalances, capital flows, interest rates, and government policies, meaning that actual exchange rates often diverge from KKP levels.