Stochastic approach to index numbers for multilateral price comparisons and their standard errors

Hajargasht, Gholamreza and Rao, D. S. Prasada (2010) Stochastic approach to index numbers for multilateral price comparisons and their standard errors. Review of Income and Wealth, 56 Suppl 1: S32-S58. doi:10.1111/j.1475-4991.2010.00387.x

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Author Hajargasht, Gholamreza
Rao, D. S. Prasada
Title Stochastic approach to index numbers for multilateral price comparisons and their standard errors
Journal name Review of Income and Wealth   Check publisher's open access policy
ISSN 0034-6586
Publication date 2010-06
Sub-type Article (original research)
DOI 10.1111/j.1475-4991.2010.00387.x
Volume 56
Issue Suppl 1
Start page S32
End page S58
Total pages 27
Editor Conchitta D'Ambroso
Robert J. Hill
Stephan Klasen
Place of publication Oxford, UK
Publisher Blackwell Publishing
Collection year 2011
Language eng
Subject C1
1401 Economic Theory
Abstract The main objective of the paper is to demonstrate that a number of widely used multilateral index numbers for international comparisons of purchasing power parities (PPPs) and real incomes can be derived using the stochastic approach. The paper shows that price index numbers from commonly used methods like the Ikle, the Rao-weighted, and an additive multilateral system are all estimators of the parameters of the country-product-dummy (CPD) model. The advantage of the stochastic approach is that we can derive standard errors for the estimates of the purchasing power parities (PPPs). The PPPs and the parameters of the stochastic model are estimated using a weighted maximum likelihood procedure under different stochastic specifications for the disturbance term. Estimates of PPPs and their standard errors for OECD countries using the proposed methods are presented. The paper also outlines a method of moments approach to the estimation of PPPs under the stochastic approach. The paper shows how the Geary-Khamis system of multilateral index numbers is a method of moments estimator of the parameters of the CPD model. The paper therefore provides a coherent stochastic framework for the Geary-Khamis system and derives standard errors of the Geary-Khamis PPPs.
Keyword Multilateral index numbers
Price index numbers
Purchasing power parities (PPPs)
Stochastic approach
Q-Index Code C1
Q-Index Status Confirmed Code
Institutional Status UQ

Document type: Journal Article
Sub-type: Article (original research)
Collections: Official 2011 Collection
School of Economics Publications
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Citation counts: TR Web of Science Citation Count  Cited 1 times in Thomson Reuters Web of Science Article | Citations
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Created: Sun, 11 Jul 2010, 00:01:21 EST