"Price Levels and Economic Growth: Making Sense of Revisions to Data on Real Incomes": A Comment. (13th October 2013)

• Record Type: Journal Article
• Authors: Inklaar, Robert
• Is Part Of: Review of income and wealth. Series 59:Number 4(2013:Dec.)
• Page Start: 614
• Page End: 622
• Publication Date: 2013-10-13
• Subjects: E31 -- O47; Balassa‐Samuelson -- economic growth -- purchasing power parity; National income -- Accounting -- Periodicals; 332.05
• DOI: 10.1111/roiw.12078
• Languages: English
• ISSNs: 0034-6586

Abstract

Abstract : In his recent paper, Ravallion (2013) proposes a new method to predict changes in purchasing power parities (PPPs), arguing that a model that includes economic growth and exchange rate movements is superior to the standard approach of using inflation differences. In this comment, I argue that his test is wrong and I show that with a correct specification of the test, there is no robust and stable relationship between changes in PPPs and economic growth while the usefulness of the standard approach is confirmed. I also suggest an approach that could be more helpful to understand changes in PPPs.