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American Economic Journal: Macroeconomics: Vol. 2 No. 4 (October 2010)

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Understanding PPPs and PPP-Based National Accounts

Article Citation

Deaton, Angus, and Alan Heston. 2010. "Understanding PPPs and PPP-Based National Accounts." American Economic Journal: Macroeconomics, 2(4): 1-35.

DOI: 10.1257/mac.2.4.1

Abstract

We provide an overview of the theory and practice of constructing PPPs. We focus on four practical areas: how to handle international differences in quality; the treatment of urban and rural areas of large countries; how to estimate prices for government services, health, and education; and the effects of the regional structure of the latest International Comparison Program for 2005. We discuss revisions of the Penn World Table, and their effects on econometric analysis, and include health warnings. Some international comparisons are close to impossible, even in theory, and in others, the practical difficulties make comparison exceedingly hazardous. (JEL C43, E01, E31, O57).

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Authors

Deaton, Angus (Princeton U)
Heston, Alan (U PA)

JEL Classifications

C43: Index Numbers and Aggregation; leading indicators
E01: Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
E31: Price Level; Inflation; Deflation
O57: Comparative Studies of Countries

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American Economic Journal: Macroeconomics


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