Stochastic Approach To Index Numbers For Multilateral Price Comparisons And Their Standard Errors
AbstractThe main objective of the paper is to demonstrate that a number of widely used multilateral index numbers for international comparisons of purchasing power parities (PPPs) and real incomes can be derived using the stochastic approach. The paper shows that price index numbers from commonly used methods like the Iklé, the Rao-weighted, and an additive multilateral system are all estimators of the parameters of the country-product-dummy (CPD) model. The advantage of the stochastic approach is that we can derive standard errors for the estimates of the purchasing power parities (PPPs). The PPPs and the parameters of the stochastic model are estimated using a weighted maximum likelihood procedure under different stochastic specifications for the disturbance term. Estimates of PPPs and their standard errors for OECD countries using the proposed methods are presented. The paper also outlines a method of moments approach to the estimation of PPPs under the stochastic approach. The paper shows how the Geary-Khamis system of multilateral index numbers is a method of moments estimator of the parameters of the CPD model. The paper therefore provides a coherent stochastic framework for the Geary-Khamis system and derives standard errors of the Geary-Khamis PPPs. Copyright 2010 The Authors. Journal compilation International Association for Research in Income and Wealth 2010.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by International Association for Research in Income and Wealth in its journal Review of Income and Wealth.
Volume (Year): 56 (2010)
Issue (Month): s1 (06)
Contact details of provider:
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0034-6586
More information through EDIRC
Other versions of this item:
- 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.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Erwin Diewert, 2005. "Weighted Country Product Dummy Variable Regressions And Index Number Formulae," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 51(4), pages 561-570, December.
- 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.
- D. S. Prasada Rao, 2005. "On The Equivalence Of Weighted Country-Product-Dummy (Cpd) Method And The Rao-System For Multilateral Price Comparisons," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 51(4), pages 571-580, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If references are entirely missing, you can add them using this form.