True Multilateral Indexes for International Comparisons of Real Income: Theory and Empirics

J. Peter Neary

No 2590, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: I introduce a utility-consistent benchmark for international comparisons of real income, the GAIA (?Geary-Allen International Accounts?) System. It coincides with the Geary method (which underlies the Penn World Table) when preferences are Leontief and with the EKS method (favoured by OECD) when preferences are homogeneous quadratic. The Geary method seems preferable since it gives a (possibly poor) approximation to a consistent set of international comparisons, whereas the EKS method gives a good approximation to an inconsistent set. An illustrative empirical application, using estimates of a QUAIDS demand system, suggests that both methods impose excessive ?convergence? on the data.

Keywords: International comparisons of real incomes; Exchange rates; Purchasing power parities; Index numbers of prices and real incomes; Geary method; Penn world table; Gaia system; Quaids (quadratic almost ideal demand system) (search for similar items in EconPapers)
JEL-codes: D10 F00 (search for similar items in EconPapers)
Date: 2000-10
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Citations: View citations in EconPapers (7)

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