Understanding and reconciling the two real GDP series in Maddison Project 2018

Imagine you have several stopwatches. You start them all at the same time, but when you come back after several days, you find them all to be displaying different numbers. So you set them to the same time, and check back a few days later again. The figures diverge again, in a completely different way from the way they did the last time. You find it impossible to predict whether a stopwatch will go too slow or too fast. A stopwatch may be too fast at one day, too slow on another, and at the right speed at yet another time. But it’s nearly certain the figures the stopwatches show will diverge from each other over long periods of time if not periodically reset. You have a decision: allow each stopwatch to stay consistent within itself, and thus allow inconsistency between stopwatches to creep in, or sacrifice internal consistency by resetting the stopwatches from time to time in order to maintain consistency between the stopwatches.

This parable is of the difficulty of deriving GDP (PPP) estimates. Every five years or so, the purchasing power parity weights seem to change significantly, with no regard for measured within-country growth over years. And, yet, if one does not re-weigh one’s GDP per capita estimates over long periods of time, you are certain to have nonsensical results like Switzerland and the Netherlands being richer than the United States in the 1860s, when literally no contemporary evidence suggests this, and the resulting implied price levels from these countries would be absurdly low.

My first attempt to reconcile those series is to weigh the rgdpnapc series more in years closer to 2011 and the cgdppc series in years further away from 2011, as thus:

The other option would be to create a trendline for the cgdppc data, create another trendline for the rgdpnapc data, subtract the two, and add that difference to the rgdpnapc data. However, my first solution better deals with the fact within-country real GDP estimates become more accurate over time and always imperfect international comparisons simultaneously become more frequent.

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