Comment on Understanding PPPs and PPP Based National Accounts

The paper discusses the three major problems that Deaton and Heston identify that make it difficult to construct consistent estimates of real output across countries: (i) the choice of a multilateral index number formula; (ii) weak national accounts estimates of country expenditures on the 155 major expenditure categories that are identified in the World Bank’s International Comparison Program and (iii) the fact that countries at different levels of development consume products that are not consumed widely by other countries in the comparison and thus the country price levels that are determined in the comparison project may not be reliable.