One proposal to stabilize the international monetary system involves setting exchange rates at  their purchasing power parity rates. Once exchange rates are correctly aligned (according to PPP), each nation would adjust its monetary policy so as to maintain them. What problems might arise from using the PPP rate as a guide to the equilibrium exchange rate?

International Financial Management
14th Edition
ISBN:9780357130698
Author:Madura
Publisher:Madura
ChapterP1: Part 1: Integrative Problem: The International Financial Environment
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1.One proposal to stabilize the international monetary system involves setting exchange rates at  their purchasing power parity rates. Once exchange rates are correctly aligned (according to
PPP), each nation would adjust its monetary policy so as to maintain them. What problems might arise from using the PPP rate as a guide to the equilibrium exchange rate?

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