Recall the purchasing power parity (PPP) theories from your international economics course. PPP says that the same

Question:

Recall the purchasing power parity (PPP) theories from your international economics course. PPP says that the same good sold in any two countries should have the same price in both countries once it is adjusted by the (and net of transportation costs). Choose any two countries, say the United States and Germany. Let Pt, be the Consumer Price Index (CPI) in the United States and P*0 the CPI for Germany. If et, is the between Germany and the United States (dollars per euro), then PPP claims that Pt, = P*t . et. Downloaded the three time series. CPIs for both countries and the dollar/euro Convert the German CPI to dollars, that is, P*t . et. Analyze the difference Pt – P*t . e. Is this a cointegrating relation? If it is, PPP holds, albeit in a weaker form.
Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...