Extrapolation of purchasing power parities using multiple benchmarks and auxiliary information: A new approach

Rao, D. S. Prasada, Rambaldi, Alicia and Doran, Howard (2010) Extrapolation of purchasing power parities using multiple benchmarks and auxiliary information: A new approach. Review of Income and Wealth, 56 Suppl 1: S59-S98. doi:10.1111/j.1475-4991.2010.00386.x

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Author Rao, D. S. Prasada
Rambaldi, Alicia
Doran, Howard
Title Extrapolation of purchasing power parities using multiple benchmarks and auxiliary information: A new approach
Journal name Review of Income and Wealth   Check publisher's open access policy
ISSN 0034-6586
Publication date 2010-06-01
Year available 2010
Sub-type Article (original research)
DOI 10.1111/j.1475-4991.2010.00386.x
Open Access Status Not yet assessed
Volume 56
Issue Suppl 1
Start page S59
End page S98
Total pages 40
Editor Conchitta D'Ambroso
Robert J. Hill
Stephan Klasen
Place of publication Oxford, U.K.
Publisher Blackwell Publishing
Language eng
Subject C1
1401 Economic Theory
Abstract The paper presents an econometric framework for the construction of a consistent panel of purchasing power parities (PPPs) which makes it possible to combine all the PPP benchmark data from various phases of the International Comparison Program with the data on national price movements in the form of implicit deflators from national accounts. The method improves upon the current practice used in the construction of the Penn World Tables (PWT), and similar tables produced by the World Bank which tend to be anchored on a selected benchmark. The econometric formulation is based on a regression model for the national price levels where the disturbances are assumed to be heteroskedastic and spatially correlated across countries. The regression model along with data on country specific price movements are combined using a state–space formulation and optimum predictions of PPPs are obtained. As a property of the method presented in the paper, we show that the resulting PPP predictions are weighted averages of extrapolations of PPPs from different benchmarks—thus the method provides a formal approach which has a simple intuitive interpretation. The smoothed PPP predictions (and standard errors) obtained through the state–space are produced for both ICP-participating and non-participating countries and non-benchmark years. A complete tableau of PPPs for 141 countries spanning the period 1970 to 2005 is compiled using the method. Results for some selected countries are presented and the new series are compared and contrasted with the currently available PWT series. Extrapolated series for the remaining countries are available from the authors upon request.
Keyword Exchange rates
Price levels
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 7 times in Thomson Reuters Web of Science Article | Citations
Scopus Citation Count Cited 7 times in Scopus Article | Citations
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Created: Sun, 11 Jul 2010, 10:01:25 EST