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In what situations would biases arise in PPPs?

arise biases ppps situations
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In what situations would biases arise in PPPs?

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There are two situations in which biases are known to arise in PPPs. The first is the “Gerschenkron effect” (see below) and the other is when a country reports prices that are not representative of its consumption patterns but classifies them as being “representative”. Generally, prices which are “non-representative” tend to be higher than those which are “representative” of a country’s consumption. Therefore, a country which reports non-representative prices but classifies them as “representative” will overstate its price levels and therefore understate its per capita volumes.

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