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The Hedonic Country Product Dummy Method and Quality Adjustments for Purchasing Power Parity Calculations

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  • Mick Silver

Abstract

The 2005 International Comparison Program's (ICP) estimates of economy-wide purchasing power parity (PPP) are based on parity estimates for 155 basic expenditure headings, mainly estimated using country product dummy (CPD) regressions. The estimates are potentially inefficient and open to omitted variable bias for two reasons. First, they use average prices across outlets as the left-hand-side variable. Second, quality-adjusted prices of non-comparable replacements, required when products in outlets do not match the required specifications, cannot be effectively included. This paper provides an analytical framework based on panel data and hedonic CPD regressions for ameliorating these sources of bias and inefficiency.

Suggested Citation

  • Mick Silver, 2009. "The Hedonic Country Product Dummy Method and Quality Adjustments for Purchasing Power Parity Calculations," IMF Working Papers 2009/271, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2009/271
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    Cited by:

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    2. Robert J. Hill & Iqbal Syed, 2010. "Improving International Comparisons of Real Output: The ICP 2005 Benchmark and its Implications for China," Discussion Papers 2010-25, School of Economics, The University of New South Wales.
    3. Martin Ravallion, 2016. "Toward better global poverty measures," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 14(2), pages 227-248, June.
    4. Robert J. Hill & Iqbal A. Syed, 2012. "Accounting for Unrepresentative Products and Urban-Rural Price Differences in International Comparisons of Real Income: An Application to the Asia-Pacific Region," Graz Economics Papers 2012-07, University of Graz, Department of Economics.
    5. Luigi Biggeri & Tiziana Laureti & Federico Polidoro, 2017. "Computing Sub-national PPPs with CPI Data: An Empirical Analysis on Italian Data Using Country Product Dummy Models," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 131(1), pages 93-121, March.
    6. Sakurai, Takeshi & Ralandison, Tsilavo & Takahashi, Kazushi & Arimoto, Yutaka & Kono, Hisaki, 2015. "Is there any premium for unobservable quality? : a hedonic price analysis of the Malagasy rice market," IDE Discussion Papers 504, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    7. Mick Silver, 2010. "IMF Applications of Purchasing Power Parity Estimates," IMF Working Papers 2010/253, International Monetary Fund.
    8. Daniel Melser, 2016. "Prices over the business cycle: micro-level evidence from scanner data," Economics Bulletin, AccessEcon, vol. 36(4), pages 1922-1928.
    9. Consuelo Nava & Maria Grazia Zoia, 2019. "An econometric analysis of the Italian cultural supply," Papers 1910.00073, arXiv.org, revised May 2020.
    10. Consuelo R. Nava & Antonio Pesce & Maria Grazia Zoia, 2019. "A new proposal for the construction of a multi-period/multilateral price index," DISCE - Quaderni del Dipartimento di Politica Economica dipe0007, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    11. Weinand, Sebastian, 2020. "Measuring spatial price differentials: A comparison of stochastic index number methods," Discussion Papers 12/2020, Deutsche Bundesbank.
    12. Ravallion, Martin, 2018. "An exploration of the changes in the international comparison program’s global economic landscape," World Development, Elsevier, vol. 105(C), pages 201-216.

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