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

Download or read book The Hedonic Country Product Dummy Method and Quality Adjustments for Purchasing Power Parity Calculations written by Mick Silver and published by International Monetary Fund. This book was released on 2009-12-01 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.