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On The Equivalence Of Weighted Country-Product-Dummy (Cpd) Method And The Rao-System For Multilateral Price Comparisons

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  • D. S. Prasada Rao

Abstract

The country-product-dummy (CPD) method, originally proposed in Summers (1973), has recently been revisited in its weighted formulation to handle a variety of data related situations (Rao and Timmer, 2000, 2003; Heravi et al. , 2001; Rao, 2001; Aten and Menezes, 2002; Heston and Aten, 2002; Deaton et al. , 2004). The CPD method is also increasingly being used in the context of hedonic modelling instead of its original purpose of filling holes in Summers (1973). However, the CPD method is seen, among practitioners, as a black box due to its regression formulation. The main objective of the paper is to establish equivalence of purchasing power parities and international prices derived from the application of the weighted-CPD method with those arising out of the Rao-system for multilateral comparisons. A major implication of this result is that the weighted-CPD method would then be a natural method of aggregation at all levels of aggregation within the context of international comparisons. Copyright 2005 Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by International Association for Research in Income and Wealth in its journal Review of Income and Wealth.

Volume (Year): 51 (2005)
Issue (Month): 4 (December)
Pages: 571-580

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Handle: RePEc:bla:revinw:v:51:y:2005:i:4:p:571-580

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Cited by:
  1. Bettina Aten & Eric Figueroa & Troy Martin, 2011. "Notes on Estimating the Multi-Year Regional Price Parities by 16 Expenditure Categories: 2005-2009," BEA Working Papers 0071, Bureau of Economic Analysis.
  2. Diewert, W. Erwin & Nakamura, Alice O. & Nakamura, Leonard I., 2009. "The housing bubble and a new approach to accounting for housing in a CPI," Journal of Housing Economics, Elsevier, vol. 18(3), pages 156-171, September.
  3. Gholamreza Hajargasht & D.S. Prasada Rao, 2008. "Stochastic Approach to Index Numbers for Multilateral Price Comparisons and their Standard Errors," CEPA Working Papers Series WP062008, School of Economics, University of Queensland, Australia.
  4. D. Coondoo & A. Majumder & R. Ray, 2001. "On a Method of Calculating Regional Price Differentials with Illustrative Evidence from India," ASARC Working Papers 2001-06, The Australian National University, Australia South Asia Research Centre.
  5. Bettina Aten & Marshall Reinsdorf, 2010. "Comparing the Consistency of Price Parities for Regions of the U.S. in an Economic Approach Framework," BEA Papers 0098, Bureau of Economic Analysis.
  6. Matthew J Osborne & Nathan H. Miller, 2011. "Competition among Spatially Differentiated Firms: An Estimator with an Application to Cement," BEA Working Papers 0072, Bureau of Economic Analysis.
  7. D.S. Prasada Rao, 2004. "The Country-Product-Dummy Method: A Stochastic Approach to the Computation of Purchasing Power Parities in the ICP," CEPA Working Papers Series WP032004, School of Economics, University of Queensland, Australia.
  8. Ingvild Almås, 2010. "International Income Inequality: Measuring PPP Bias by Estimating Engel Curves for Food," CESifo Working Paper Series 3247, CESifo Group Munich.
  9. Mick Silver, 2009. "The Hedonic Country Product Dummy Method and Quality Adjustments for Purchasing Power Parity Calculations," IMF Working Papers 09/271, International Monetary Fund.

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