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Axiomatic and Economic Approaches to International Comparisons

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  • W. Erwin Diewert

Abstract

The paper considers the problem of choosing a multilateral system of index numbers in order to make aggregate price and quantity comparisons between many countries and regions. The problems involved in choosing functional forms in order to make these comparisons are both theoretically and empirically more difficult than the problems involved in choosing a bilateral index number formula. The great variation in relative prices and quantities in the international context means that the choice of a multilateral method is empirically important: different methods will give very different answers. The paper reviews ten classes of multilateral methods both from the viewpoint of the axiomatic approach as well as the economic approach. A new system of 11 desirable axioms or properties for multilateral systems is suggested. With respect to the economic approach, the concept of a superlative bilateral index number formula (which can adequately model substitution effects) is adapted to the multilateral context. Each of the 10 classes of multilateral methods is evaluated from the axiomatic and economic perspectives. Four classes of methods are identified as being `best' They are all superlative and satisfy slightly different sets of axioms.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5559.

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Date of creation: May 1996
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Publication status: published as W. Erwin Diewert. "Axiomatic and Economic Approaches to International Comparisons," in Alan Heston and Robert E. Lipsey, editors, "International and Interarea Comparisons of Income, Output, and Prices" University of Chicago Press (1999)
Handle: RePEc:nbr:nberwo:5559

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Cited by:
  1. Barnett, William A. & Diewert, W. Erwin & Zellner, Arnold, 2009. "Introduction To Measurement With Theory," Macroeconomic Dynamics, Cambridge University Press, vol. 13(S2), pages 151-168, September.
  2. 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.
  3. Feenstra, Robert C. & Heston, Alan & Timmer, Marcel P. & Deng, Haiyan, 2007. "Estimating real production and expenditures across nations : a proposal for improving the Penn World Tables," Policy Research Working Paper Series 4166, The World Bank.
  4. Takanobu Nakajima & Alice Nakamura & Emi Nakamura & Masao Nakamura, 2007. "Technical change in a bubble economy: Japanese manufacturing firms in the 1990s," Empirica, Springer, vol. 34(3), pages 247-271, July.
  5. Richard Grieve & Richard Nixon & Simon G. Thompson & Charles Normand, 2005. "Using multilevel models for assessing the variability of multinational resource use and cost data," Health Economics, John Wiley & Sons, Ltd., vol. 14(2), pages 185-196.
  6. Tomasz Kuszewski & Agata Sielska, 2010. "The Useful art of the social-economic Rankings," Contemporary Economics, University of Finance and Management in Warsaw, vol. 4(1), March.
  7. Aten, Bettina & Heston, Alan, 2003. "Regional Output Differences in International Perspective," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  8. Travis D. Nesmith, 2006. "Rational seasonality," Finance and Economics Discussion Series 2007-04, Board of Governors of the Federal Reserve System (U.S.).
  9. Angus Deaton & Alan Heston, 2008. "Understanding PPPs and PPP-based national accounts," Working Papers 1120, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
  10. Diewert, Erwin & Fox, Kevin J. & Ivancic, Lorraine, 2009. "Scanner Data, Time Aggregation and the Construction of Price Indexes," UBC Departmental Archives erwin_diewert-2009-48, UBC Department of Economics, revised 22 Sep 2009.
  11. Almås, Ingvild & Sørensen, Erik Ø., 2012. "Global Income Inequality and Cost-of-Living Adjustment: The Geary–Allen World Accounts," Discussion Paper Series in Economics 20/2012, Department of Economics, Norwegian School of Economics.
  12. Magne Mogstad, 2007. "Measuring Income Inequality under Restricted Interpersonal Comparability," Discussion Papers 498, Research Department of Statistics Norway.
  13. Neary, J Peter, 2000. "True Multilateral Indexes for International Comparisons of Real Income: Theory and Empirics," CEPR Discussion Papers 2590, C.E.P.R. Discussion Papers.

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