PPP Puzzle

The PPP puzzle, considered one of the two real exchange rate puzzles, concerns the observation that real exchange rates are both more volatile and more persistent than most models would suggest. The only clear way to understand this volatility would be to assign substantial roles to monetary and financial shocks. However, if shocks play such a large role the challenge becomes finding what source, if one even exists, of nominal rigidity that could be so persistent to explain the long-term prolonged nature of real exchange rate deviations.

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Source: List of unsolved problems in economics (CC BY-SA 4.0)