Understanding PPPs and PPP-based National Accounts: Comment

Angus Deaton and Alan Heston (2010) have done a valuable service in providing just such a guide. Their paper is also a timely contribution given that the final results of the 2005 International Comparison Program (ICP) were released in 2008, provid ing PPP exchange rates based on the ICP price surveys (World Bank 2008a, 2008b). And, a new version of Penn World Tables (PWT 7.0), using the price data from the 2005 ICP, is expected soon. The paper is also timely from the point of view of the design of the forthcoming 2011 ICP. The authors generally focus on the methodological issues rather than specific country results. The big exception is China. The new PPP for China has attracted much public attention and Deaton and Heston (2010) refer to China 40 times. I will begin with some comments on what they say about China's PPP. I will then turn to the broader methodological issues they raise. The final section comments on some implications for current knowledge about macroeconomic aggregates and for cross country regressions, including growth empirics.