Discussion paper

DP2590 True Multilateral Indexes for International Comparisons of Real Income: Theory and Empirics

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.

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Citation

Neary, P (2000), ‘DP2590 True Multilateral Indexes for International Comparisons of Real Income: Theory and Empirics‘, CEPR Discussion Paper No. 2590. CEPR Press, Paris & London. https://cepr.org/publications/dp2590