Friday, February 10, 2006

Definitions From Barro Lecture

I noticed in Prof. Barro's lecture that there were several acronyms that he used without (in my opinion) adequately explaining. So I will add some information here.

PPP: stands for Purchasing Power Parity. In context, Barro said that the Summers dataset for GDP adjusted for PPP. Let me give you an example of why this is useful. Normally, you could compare GDPs across countries by just using exchange rates to convert everything to US dollars. However, if you just do this you might notice strange things like the fact that a Big Mac would cost $10 in some countries and 15 cents in others. In other words, the purcahsing power of US dollars is very different in the two countries. The PPP just adjusts such that, at least on an aggregate level, the amount of stuff you could buy with a given number of US dollars would be the same for each country. It's a bit of an oversimplification, but you get the idea.

OECD: stands for Organization for Economic Cooperation and Development. I think I explained this very briefly last semester. Basically, a bunch of countries (mainly developed countries) realized that it would be helpful to understand the macroeconomies of other countries, so they formed this organization to share information and whatnot. You can learn more at This is relevant to you guys for now mainly because a lot of the cross country data that economists look at comes from here.


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