CATEGORISATION OF ADDITIVE PURCHASING POWER PARITIES

James R. Cuthbert

Review of Income and Wealth, 1999, vol. 45, issue 2, 235-249

Abstract: Additivity is an important property for the aggregation methods used in constructing purchasing power parities. For a practical definition of additivity, this paper categorises all aditive methods. First of all, a generalisation of the Geary‐Khamis method of aggregation is defined: this is called the Generalised Geary‐Khamis, (GGK), approach. The key result proved is that, within a broad class of possible aggregation methods, the set of additive methods is precisely equivalent to the set of GGK indices. Some implications of this categorisation of additive methods are considered, both in the multilateral and bilateral cases. For example, in the multilateral case, the Iklé index is set in context as another special case of the GGK approach. In the bilateral case, it is shown that there always exists a GGK, (and therefore additive), equivalent to the Fisher Index.

Date: 1999
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