Journal
MACROECONOMIC DYNAMICS
Volume 26, Issue 2, Pages 314-360Publisher
CAMBRIDGE UNIV PRESS
DOI: 10.1017/S1365100520000152
Keywords
International Comparison; World Growth; World Inflation; Exchange Rate; Purchasing Power Parity; Index Number Theory
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Funding
- Australian Research Council [DP0986813, DP170103559]
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This paper introduces a framework for measuring global growth and inflation based on index number theory, national accounts principles, and concepts and methods for international macro-economic comparisons. The proposed approach provides a solid foundation for measuring global growth and inflation using purchasing power parity (PPP) and exchange rate (XR) as bases. The Sato-Vartia index number system offers similar results as the Fisher system, but also allows for a complete decomposition with PPP or XR effects. Estimates of global growth and inflation for 141 countries from 2005 to 2011 are presented, along with the contributions of XR and PPP movements to global inflation. The aggregation properties of the method are also discussed.
This paper offers a framework for measuring global growth and inflation, built on standard index number theory, national accounts principles, and the concepts and methods for international macro-economic comparisons. Our approach provides a sound basis for purchasing power parity (PPP)- and exchange rate (XR)-based global growth and inflation measures. The Sato-Vartia index number system advocated here offers very similar results to a Fisher system but has the added advantage of allowing a complete decomposition with PPP or XR effects. For illustrative purposes, we present estimates of global growth and inflation for 141 countries over the years 2005 and 2011. The contribution of movements in XRs and PPPs to global inflation are presented. The aggregation properties of the method are also discussed.
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