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Multilateral Sato–Vartia index for international comparisons of prices and real expenditures

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  • Abe, Naohito
  • Rao, D.S. Prasada

Abstract

The Sato–Vartia (SV) index for bilateral price comparisons has impressive analytical properties and is used intensively in recent international trade and macroeconomic analyses. We show that the SV index is only one of many logarithmic indices that satisfy the factor reversal test discussed in index number theory. In this paper we propose several transitive multilateral versions of the SV index but note that these do not satisfy factor reversal test. We derive closed form expressions for the transitive logarithmic indices and empirically implement the new indices for cross-country price comparisons using World Bank data from the 2011 International Comparison Program.

Suggested Citation

  • Abe, Naohito & Rao, D.S. Prasada, 2019. "Multilateral Sato–Vartia index for international comparisons of prices and real expenditures," Economics Letters, Elsevier, vol. 183(C), pages 1-1.
    • Handle: RePEc:eee:ecolet:v:183:y:2019:i:c:26
    DOI: 10.1016/j.econlet.2019.108535
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    1. Feenstra, Robert C, 1994. "New Product Varieties and the Measurement of International Prices," American Economic Review, American Economic Association, vol. 84(1), pages 157-177, March.
    2. Balk,Bert M., 2012. "Price and Quantity Index Numbers," Cambridge Books, Cambridge University Press, number 9781107404960.
    3. Stephen J Redding & David E Weinstein, 2020. "Measuring Aggregate Price Indices with Taste Shocks: Theory and Evidence for CES Preferences," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(1), pages 503-560.
    4. H. Funke & G. Hacker & J. Voeller, 1979. "Fisher's Circular Test Reconsidered," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 115(IV), pages 677-688, December.
    5. Fattore, Marco, 2010. "Axiomatic properties of geo-logarithmic price indices," Journal of Econometrics, Elsevier, vol. 156(2), pages 344-353, June.
    6. Sato, Kazuo, 1976. "The Ideal Log-Change Index Number," The Review of Economics and Statistics, MIT Press, vol. 58(2), pages 223-228, May.
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    Cited by:

    1. Jacek Bia{l}ek & Maciej Berk{e}sewicz, 2020. "Scanner data in inflation measurement: from raw data to price indices," Papers 2005.11233, arXiv.org.

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    More about this item

    Keywords

    Sato–Vartia index; Multilateral comparisons; Transitivity; Factor reversal test;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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