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“Price Levels and Economic Growth: Making Sense of Revisions to Data on Real Incomes”: A Comment
Author(s) -
Inklaar Robert
Publication year - 2013
Publication title -
review of income and wealth
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.024
H-Index - 57
eISSN - 1475-4991
pISSN - 0034-6586
DOI - 10.1111/roiw.12078
Subject(s) - economics , inflation (cosmology) , purchasing power , econometrics , purchasing power parity , macroeconomics , exchange rate , physics , theoretical physics
In his recent paper, R avallion (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 .