The Hedonic Country Product Dummy Method and Quality Adjustments for Purchasing Power Parity Calculations

Author/Editor:

Mick Silver

Publication Date:

December 1, 2009

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

The 2005 International Comparison Program's (ICP) estimates of economy-wide purchasing power parity (PPP) are based on parity estimates for 155 basic expenditure headings, mainly estimated using country product dummy (CPD) regressions. The estimates are potentially inefficient and open to omitted variable bias for two reasons. First, they use average prices across outlets as the left-hand-side variable. Second, quality-adjusted prices of non-comparable replacements, required when products in outlets do not match the required specifications, cannot be effectively included. This paper provides an analytical framework based on panel data and hedonic CPD regressions for ameliorating these sources of bias and inefficiency.

Series:

Working Paper No. 09/271

Subject:

Frequency:

Quarterly

English

Publication Date:

December 1, 2009

ISBN/ISSN:

9781451874167/1018-5941

Stock No:

WPIEA2009271

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

28

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