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A least squares approach to imposing within-region fixity in the International Comparisons Program

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  • Hill, Robert J.

Abstract

The International Comparisons Program (ICP) compares the purchasing power of currencies and real income across countries. ICP is broken up into six regions. Global results are then obtained by linking these regions together at both basic heading level and the aggregate level in a way that satisfies within-region fixity (i.e., the relative parities of a pair of countries in the same region are the same in the global comparison as in the within-region comparison). Standard multilateral methods violate this within-region fixity requirement and hence cannot be used to construct the global results. A method is proposed here that resolves this problem by altering the price and quantity indexes by the least-squares amount necessary to ensure that within-region fixity is satisfied. This method is then compared–both in terms of its underlying structure and empirically–with other methods for imposing within-region fixity.

Suggested Citation

  • Hill, Robert J., 2016. "A least squares approach to imposing within-region fixity in the International Comparisons Program," Journal of Econometrics, Elsevier, vol. 191(2), pages 407-413.
    • Handle: RePEc:eee:econom:v:191:y:2016:i:2:p:407-413
    DOI: 10.1016/j.jeconom.2015.12.011
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    References listed on IDEAS

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    1. Robert Summers, 1973. "International Price Comparisons Based Upon Incomplete Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 19(1), pages 1-16, March.
    2. Robert J. Hill, 1997. "A Taxonomy Of Multilateral Methods For Making International Comparisons Of Prices And Quantities," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 43(1), pages 49-69, March.
    3. Diewert, Erwin, 2008. "New Methodology for Linking the Regions," Economics working papers erwin_diewert-2008-9, Vancouver School of Economics, revised 09 Sep 2008.
    4. Angus Deaton & Alan Heston, 2010. "Understanding PPPs and PPP-Based National Accounts," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 1-35, October.
    5. Mick Silver, 2010. "IMF Applications of Purchasing Power Parity Estimates," IMF Working Papers 2010/253, International Monetary Fund.
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    Cited by:

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    2. Weinand, Sebastian, 2020. "Measuring spatial price differentials: A comparison of stochastic index number methods," Discussion Papers 12/2020, Deutsche Bundesbank.

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    More about this item

    Keywords

    ICP; Within-region fixity; Multilateral price index; GEKS;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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