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Should the regions and the global office use weighted GEKS (English)

This report is a product of the seventh meeting of the 2011 ICP Technical Advisory Group (TAG) that was held from September 17 to 18, 2012 at the World Bank in Washington, DC. TAG discussions have often focused on the wide economic differences between countries and regions and how best to put together countries within regions and the world. In the discussions it is often suggested that regions are more homogeneous than the world. This note examines one method that has been mentioned for dealing with this issue, namely weighing the various Fisher indexes that go into the generalized Elteto-Koves-Szulc (GEKS) method estimation depending on how disparate are the two components, the Paasche and Laspeyres price indexes. The method adopted by the Technical Advisory Group on the 2011 ICP is the CAR method, standing for Country Aggregation and Redistribution. The CAR approach maintains the regional shares from a global GEKS but controls the distribution of that total according to the regional GEKS. Use of SIM-weighted GEKS on the Fisher binaries is a transparent and operational method, and provides measurable differences for comparisons. This report argues that it moves the estimates in the right direction and in general this is a good thing. The effect of SIM-weighting is generally less than 1 percent on the GEKS estimate for a country compared to a base GEKS with a few countries over 2 percent. Since the effect of SIM-weighting is not large is it worth another to the estimation? The reports suggests yes both because it moves in the right direction, but also because of the relatively large differences introduced in the CAR approach, in some countries more than 5 percent compared to a global GEKS. It is the authors' recommendation that using SIM-weighted GEKS in conjunction with the CAR approach will reduce some of the larger differences associated with the CAR approach at least for 2005. At a minimum this seems like a direction that would justify further study.

Details

  • Author

    Aten,Bettina H., Heston,Alan W., Refayet,Md Ehraz

  • Document Date

    2012/08/15

  • Document Type

    Working Paper

  • Report Number

    90722

  • Volume No

    1

  • Total Volume(s)

    1

  • Country

    World,

  • Region

    The World Region,

  • Disclosure Date

    2014/10/06

  • Disclosure Status

    Disclosed

  • Doc Name

    Should the regions and the global office use weighted GEKS?

  • Keywords

    international comparison program;purchasing power parity;price level;exchange rate;Exchange Rates;standard deviation;price index;index number;empirical result;aggregation technique;national account;multilateral framework;operational method;domestic absorption;candidate countries;equal weight;regional pattern;data quality;high power;weighting scheme;research data;regional estimates;variance-covariance matrix;regression approach;weighting system;

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Citation

Aten,Bettina H. Heston,Alan W. Refayet,Md Ehraz

Should the regions and the global office use weighted GEKS (English). International Comparison Program (ICP) ; 01.02 Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/765131468326367974/Should-the-regions-and-the-global-office-use-weighted-GEKS