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Transitivity, Substitution Bias and the Fixed Basket Multilateral Walsh Index for International Price and Real Expenditure Comparisons

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  • Abe, Naohito
  • Rao, D.S. Prasada

Abstract

We advocate the multilateral Walsh index as a viable alternative to the Gini-Eltetö-Köves-Szulc (GEKS) and Geary-Khamis methods used in the Penn World Table and the International Comparison Program (ICP). We show that it is the only symmetric average fixed basket price index that satisfies transitivity, country symmetry, and invariance to proportional changes in quantities. Simplicity and its superior axiomatic properties including identity and monotonicity, and with associated substitution bias comparable to that of the GEKS_Fisher index, and plausibility and comparability of results based on the 2017 ICP data make the multilateral Walsh method an ideal choice for international price comparisons.

Suggested Citation

  • Abe, Naohito & Rao, D.S. Prasada, 2022. "Transitivity, Substitution Bias and the Fixed Basket Multilateral Walsh Index for International Price and Real Expenditure Comparisons," RCESR Discussion Paper Series DP22-1_v2, Research Center for Economic and Social Risks, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:rcesrs:dp22-1_v2
    Note: 7 May, 2022
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    File URL: https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/73526/dp22-1_rcesr.pdf
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    References listed on IDEAS

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    1. Ingvild Almas, 2012. "International Income Inequality: Measuring PPP Bias by Estimating Engel Curves for Food," American Economic Review, American Economic Association, vol. 102(2), pages 1093-1117, April.
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    1. Abe, Naohito & Rao, D.S. Prasada, 2022. "The fixed basket multilateral Walsh index for international price and real expenditure comparisons," Economics Letters, Elsevier, vol. 220(C).

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    More about this item

    Keywords

    Price comparisons; Transitivity; Proportionality; Real expenditures;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation

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