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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.

Suggested Citation

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

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    Cited by:

    1. Rao, D.S. Prasada & Hajargasht, Gholamreza, 2016. "Stochastic approach to computation of purchasing power parities in the International Comparison Program (ICP)," Journal of Econometrics, Elsevier, vol. 191(2), pages 414-425.
    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. 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.
    4. Gholamreza Hajargasht & D. S. Prasada Rao, 2010. "Stochastic Approach To Index Numbers For Multilateral Price Comparisons And Their Standard Errors," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 56(s1), pages 32-58, June.
    5. 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.
    6. 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.
    7. 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.
    8. Amita Majumder & Ranjan Ray & Kompal Sinha, 2015. "Estimating Purchasing Power Parities from Household Expenditure Data Using Complete Demand Systems with Application to Living Standards Comparison: India and Vietnam," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 61(2), pages 302-328, June.
    9. 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.
    10. Diewert, W. Erwin & Fox, Kevin J., 2016. "Kevin J. Fox Interview of W. Erwin Diewert," Microeconomics.ca working papers erwin_diewert-2016-6, Vancouver School of Economics, revised 02 Jun 2016.
    11. repec:spr:soinre:v:131:y:2017:i:1:d:10.1007_s11205-017-1578-4 is not listed on IDEAS
    12. 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.
    13. Diewert, Erwin, 2008. "New Methodology for Linking the Regions," Economics working papers erwin_diewert-2008-9, Vancouver School of Economics, revised 09 Sep 2008.
    14. Diewert, W. Erwin & Fox, Kevin J., 2017. "Substitution Bias in Multilateral Methods for CPI Construction using Scanner Data," Microeconomics.ca working papers erwin_diewert-2017-3, Vancouver School of Economics, revised 23 Mar 2017.
    15. repec:dgr:rugggd:gd-136 is not listed on IDEAS
    16. 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.
    17. repec:bla:ecorec:v:93:y:2017:i:301:p:314-332 is not listed on IDEAS
    18. Amita Majumder & Ranjan Ray, 2015. "Estimates of Spatial Prices in India and their Sensitivity to Alternative Estimation Methods and Choice of Items," Monash Economics Working Papers 11-15, Monash University, Department of Economics.
    19. Mick Silver, 2016. "How to Better Measure Hedonic Residential Property Price Indexes," IMF Working Papers 16/213, International Monetary Fund.

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