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True Multilateral Indexes for International Comparisons of Purchasing Power and Real Income

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  • J.P. Neary

Abstract

I consider the problem of choosing index numbers of purchasing power and real income for international comparisons. I show that the desirable properties of methods based on the Fisher "Ideal" index do not extend to multilateral comparisons, except when tastes are homothetic. By contrast, the Geary method, which underlies the Penn World Tables, provides an approximation to a set of "true" exchange rate indexes which have many desirable properties. In particular, if demands exhibit generalized linearity, the true indexes measure real incomes relative to a hypothetical country whose income is an appropriate average of individual countries' incomes.

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  • J.P. Neary, 1997. "True Multilateral Indexes for International Comparisons of Purchasing Power and Real Income," CEP Discussion Papers dp0329, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepdps:dp0329
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    Cited by:

    1. Mary O'Mahony & Nicholas Oulton, 2000. "International Comparisons of Labour Productivity in Transport and Communications: The US, the UK and Germany," Journal of Productivity Analysis, Springer, vol. 14(1), pages 7-30, July.

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    More about this item

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • F0 - International Economics - - General

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