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On International Comparisons in Artificial Prices

Author

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  • Oldrich Kyn

    (Boston University)

Abstract

It is a well-known problem that macroeconomic indicators calculated for different countries are not directly comparable if the original statistical data are expressed in different prices. The artificial prices, computable from input-output models, can provide quite a solid ground for the comparison of otherwise incomparable economic indicators. The main purpose of this paper was to disprove the assertion of Jerzy Osiatynski that it cannot be theoretically proven that the two-level system of prices used in East European countries, creates a systematic price bias in the macroeconomic indicators. Osiatynski correctly pointed out that the problem is much more complicated than it is usually believed. The main complication results from the fact that the imposition of indirect tax influences not only the level of prices, but also relative prices. Nevertheless, he was wrong in claiming that the change in relative prices is absolutely unpredictable and that there is an equal chance for each indicator to be biased upward or downward - except in the case of “labor-value prices”. In fact the price bias can be easily detected and measured not only at “labor-value prices”, but also at some other types of prices. The extent and direction of price bias can be empirically measured by decomposing the bias into two parts: the part which is due to the changes in relative prices, and the part which is due to the differences in the levels of retail and wholesale prices. This paper also shows that certain macroeconomic indicators can be made internationally comparable without recalculating statistics of the involved countries into the same price system. It is sufficient to measure the indicators at their own artificially computed price vectors or on the specially standardized output vectors. It is also suggested that the dominant characteristic roots of certain matrices may serve as the best unbiased measures of basic macroeconomic indicators.

Suggested Citation

  • Oldrich Kyn, 2005. "On International Comparisons in Artificial Prices," Development and Comp Systems 0509021, EconWPA.
  • Handle: RePEc:wpa:wuwpdc:0509021
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    Keywords

    International Comparisons; Price Types; Labor Value; Production Prices; Input-Output Price Models.;

    JEL classification:

    • O - Economic Development, Innovation, Technological Change, and Growth
    • P - Economic Systems

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