Maxim Pinkovskiy, Xavier Sala-i-Martin, 18 May 2018

Purchasing power parities have been one of the successes of economic measurement. This column asks whether these adjustments are a better measure of the underlying economy than market exchange rates, whether our successive estimates of PPP are improving, and whether we should discard past PPPs when new data become available. Using a regression of night-time lights on PPP-adjusted GDP data, it argues that the answers are yes, yes, and (for now) yes. In fact, current estimates of prices now may be better estimates of past prices than estimates of those past prices made at the time.

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