Working Paper: CEPR ID: DP2590
Authors: J. Peter Neary
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: Exchange rates; GAIA system; Geary method; Index numbers of prices and real incomes; International comparisons of real incomes; Penn World Table; Purchasing power parities; QUAIDS quadratic almost ideal demand system
JEL Codes: C80; D10; F00
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| geary method (C11) | consistent set of international comparisons (F40) |
| eks method (Y60) | inconsistent set of international comparisons (F40) |
| gaia system (P40) | more accurate income comparisons (F40) |
| choice of index method (C43) | reliability of income comparisons (F40) |
| quaids demand system (D10) | comparison across different methods (C52) |
| eks method (Y60) | compression of world income distribution (F62) |
| geary method (C11) | compression of world income distribution (F62) |