A new price index for multi-period and multilateral comparisons

Abstract

Within the stochastic approach, this paper establishes a closed-form solution to the price index problem for an arbitrary number of periods or countries. The index’s reference basket merges the intersections of all couples of baskets in all periods/countries and provides an effective commodity coverage. Under spherical regression errors, the index satisfies the Geary–Khamis equation system and, as such, offers a general and compact representation of the latter as well as the inferential framework as a dowry. Furthermore, by relaxing sphericalness in favor of a more realistic assumption of commodity-dependent variances, a broader result is achieved. The solution to the price index problem thus obtained encompasses the Geary–Khamis formulation and sows the seeds to further advances.