Question

What does Purchasing Power Parity suggest? How can you explain the devaluation in Polish Zloty from PPP perspective? What should Poland have done to avoid devaluation?

Answer 1

Purchasing power parity suggests that prices of goods and commodities between various countries will be similar to each other when we are affecting them in Exchange with the currencies of these Nations so there will not be any discrepancies after the currencies have been discounted and in relation to the price

Devaluation in polish currency from the purchasing power perspective will mean that the goods and services in the Poland will be priced higher in the domestic currency terms but when we were exchanging it in terms of the foreign currency these goods and services will be valued accordingly.

Poland should have proactively reacted to the recessionary economic situation by cutting down on the interest rates and cutting out on the monetary policy along with doing various kinds of stimulation measures and bailout packages in order to revive the economy in advance so there would have been no need for a devaluation of currency in order to revive the economy from a recession.