Comparing Price Levels across Countries Using Minimum-Spanning Trees

Robert Hill ()

The Review of Economics and Statistics, 1999, vol. 81, issue 1, 135-142

Abstract: It is shown how a comparison of price levels across a group of countries can be made by chaining bilateral price indexes across a spanning tree. It is argued that we should use the spanning tree whose resulting multilateral price indexes are least sensitive to the choice of bilateral formula. This minimum-spanning tree can be easily computed using Kruskal's algorithm. Results obtained by chaining Fisher indexes across a minimum-spanning tree are compared with the Penn World Table. © 1999 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

Date: 1999
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