A complication arises in making cross country comparisons if you also wish to extend the comparison over time. This is because conditions, for example price levels, relative prices, expenditures and mixture of goods bought or produced, changes. This problem is common and usually requires series that have been explicitly or implicitly deflated with a price index.
If you make a comparison between various countries' macro-economic series, such as gross national income, national expenditure, national saving, aggregate investment etc of, it is best to use PPP measures. (see previous sections). These will give you as much comparability as possible.
But series in the international macro databanks may be labelled current or constant prices
Current price series make best cross national comparisons at any point in time
This is because they use, as nearly as possible, the most up to date data on expenditures and bundles and quality of goods transacted in the economies under comparison. However for this very reason the bundle of goods on which the comparison is based changes periodically .So over time like is not being compared to like and current price comparisons fail to distinguish price change effects from real effects - the very point of PPP comparisons. Furthermore there are reasons to suspect that changes in the basic bundle of goods make comparisons between very different economies increasingly inaccurate.
Constant price series are better for making comparisons over time
This is because they are based on the same bundle of goods (the base year bundle) over the time-span used. Temporal price indices have been used. But if over the time-span expenditures and choices change (and economists believe that in general they will - the so called substitution effect), the common bundle of goods becomes less accurate so less able to reflect each individual or groups' welfare. This is a well known problem with series based on common base year indices.
This is because they are based on the same bundle of goods (the base year bundle) over the time-span used. Temporal price indices have been used. But if over the time-span expenditures and choices change (and economists believe that in general they will - the so called substitution effect), the common bundle of goods becomes less accurate so less able to reflect each individual or groups' welfare. This is a well known problem with series based on common base year indices.
In addition, if cross national comparisons are being made between countries in which data series trends diverge the price level comparisons becomes less accurate and the comparisons less valid.
Some series have little or no cardinal meaning in comparing economies e.g. REER. But they do enable comparisons of trends over time. See next section.
