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Theoretical foundations of the "Geary method" for international comparisons of purchasing power and real incomes

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  • J. Peter Neary

Abstract

This paper provides a centenary review of the method of calculating real incomes and purchasing power parities proposed by Roy Geary. This method is the most widely used in major international comparisons, but it is often criticised for its lack of theoretical foundations. I discuss the properties of the method and its competitors in the light of both practical and theoretical considerations. I also propose a new method of computing "true" or, as I call them, "Geary-Konus" exchange rates and world prices and I argue that the Geary method provides the best available approximation to the true values.

Suggested Citation

  • J. Peter Neary, 1996. "Theoretical foundations of the "Geary method" for international comparisons of purchasing power and real incomes," Working Papers 199603, School of Economics, University College Dublin.
    • Handle: RePEc:ucn:wpaper:199603
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    File URL: http://hdl.handle.net/10197/3047
    File Function: First version, 1996
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    Citations

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    Cited by:

    1. J. Peter Neary, 2004. "Rationalizing the Penn World Table: True Multilateral Indices for International Comparisons of Real Income," American Economic Review, American Economic Association, vol. 94(5), pages 1411-1428, December.
    2. Neary, P.J., 1996. "True Multilateral Indexex for International Comparisons of Purchasing Power and Real Income," Papers 96/22, College Dublin, Department of Political Economy-.
    3. Rodney Thom & Brendan M. Walsh, 2001. "The effect of a common currency on trade : Ireland before and after the Sterling link," Working Papers 200110, School of Economics, University College Dublin.
    4. Neary, Peter, 2000. "True Multilateral Indexes for International Comparisons of Real Income: Theory and Empirics," CEPR Discussion Papers 2590, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    International comparisons of Real Incomes; Exchange rates; Purchasing power parities; Price indexes; R.C. Geary; Income--Mathematical models; Purchasing power--Mathematical models; Foreign exchange rates;
    All these keywords.

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs
    • F0 - International Economics - - General

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