I have a quit straight forward question: I have a variable which is coal rents measured in 2009 US Dollar. I would like to set this variable in relation (ratio) to another variable which is PPP Converted GDP Per Capita (Chain Series), at 2005 constant prices.

$\frac{\rm coal \;rent}{\rm GDP(ppp)}$

I would like to run some regressions with this variable as my independent variable. However I´m not sure whether I have to account for inflation from 2005-2009 when doing the ratio of $\frac{\rm coal \;rent}{\rm GDP(ppp)}$.....I dont have much economics backround :) maybe some of you are able to give me a theoretical as well as a practical hint....

thx and happy new start :)

  • $\begingroup$ You can use TeX typesetting by enclosing the code in dollar signs, i.e. \$\frac{a}{b}\$ displays as $\frac{a}{b}$. $\endgroup$ – Alex Becker Jan 1 '14 at 23:39

Mathematically, you can do whichever you like. They are both well defined computations. Since your GDP data is adjusted for inflation, it seems more logical to have your coal rents in constant dollars. To do so, divide the coal rents in each year by the ratio of that year's inflation measure to the measure in the base year (presumably 2005).

  • $\begingroup$ My data starts with 1960. So I´ll take the annual US inflation rate since 1960 and divide the coal rents from each year by the ratio of thats year inflation measure? What do you mean with RATIO of thats year inflation measure....could you provide a simple arithmetic example please...THX alot $\endgroup$ – Googme Jan 2 '14 at 8:49
  • $\begingroup$ You can divide them all with the measure from their year, that is fine. Or you could leave the 1960 data untouched and divide the 1961 data by (1961 inflation figure)/(1960 inflation figure). It just rescales that axis. I was thinking the second there. $\endgroup$ – Ross Millikan Jan 2 '14 at 12:30

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