A minimum distance and the generalised EKS approaches to multilateral comparisons of prices and real incomes

The paper proposes a new approach: the minimum distance approach as an alternative to the minimum spanning tree (MST) approach; and revisits the weighted EKS (WGEKS) method for undertaking multilateral comparisons of prices and real incomes. These approaches are designed to make complete use of the information available and at the same time provide meaningful and fully operational methods for the computation of PPPs. Two measures of similarity proposed by Diewert (2009) are used in conjunction with the Paasche-Laspeyres spread in implementing the MST, WEKS and minimum distance approaches. The paper establishes analytical properties of the methods and also provides an empirical illustration using data generated from the ICP 2005 at the basic heading level. Robustness of the results to different methods and to alternative methods of similarity is examined