Today, I will address the dilemmas that we, as policy makers, face in the conduct of exchange rate policy. International Parity 2. I will briefly, as a backdrop, revisit the four parity conditions, that you are familiar with. First, the Purchasing Power Parity (PPP) which links the spot exchange rate and inflation. Secondly, the International Fisher Relation which links interest rates and inflation.
It is very obvious that the Member States of the euro area are more advanced in economic integration than the others are.