kaupmáttarpar
Kaupmáttarpar refers to the concept of purchasing power parity in Icelandic economics. It is a theory suggesting that in the long run, exchange rates between two countries should move towards a rate that would equalize the prices of an identical basket of goods and services in each country. Essentially, if a good costs 100 Icelandic Króna (ISK) in Iceland, its equivalent in another currency, say US Dollars (USD), should be such that after conversion, the price is the same. This theory is based on the law of one price, which states that in competitive markets, identical goods should trade for the same price when expressed in the same currency.
The practical application of kaupmáttarpar is often observed in the long-term trends of exchange rates. However,