Does the purchase power parity hold in the 21st century?

The Problem Exchange rate determin" rel="nofollow">ination has always been an in" rel="nofollow">interestin" rel="nofollow">ing yet controversial topic in" rel="nofollow">in macroeconomics. Developed by Gutav and Cassell in" rel="nofollow">in the early 20th century, the purchasin" rel="nofollow">ing power parity (PPP) is one of the most in" rel="nofollow">influential models of exchange rate determin" rel="nofollow">ination over the past century. While the PPP gives a theoretical consistent explanation of exchange rate determin" rel="nofollow">ination, empirical studies of the 20th century tend to blatantly reject the theory of PPP (Meese and Rogoff, 1983; Froot and Rogoff, 1995; Pilbeam, 2006). Nevertheless, many economists still believe that the PPP is valid explanation of exchange rate determin" rel="nofollow">ination, at least over the long run (Patel, 1990; Abuaf and Jorion, 1990; Cheung, 1993). The research question of this study is therefore defin" rel="nofollow">ined as: 1. Is the absolute PPP valid in" rel="nofollow">in the 21st century? 2. Is the relative PPP valid in" rel="nofollow">in the 21st century? 3. What are the underlyin" rel="nofollow">ing factors that lead to the validity/in" rel="nofollow">invalidity of the PPP?