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Comparing Price Levels Across Countries Using Minimum-Spanning Trees

Robert J. Hill
The Review of Economics and Statistics
Vol. 81, No. 1 (Feb., 1999), pp. 135-142
Published by: The MIT Press
Stable URL: http://www.jstor.org/stable/2646792
Page Count: 8
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Comparing Price Levels Across Countries Using Minimum-Spanning Trees
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Abstract

It is shown how a comparison of price levels across a group of countries can be made by chaining bilateral price indexes across a spanning tree. It is argued that we should use the spanning tree whose resulting multilateral price indexes are least sensitive to the choice of bilateral formula. This minimum-spanning tree can be easily computed using Kruskal's algorithm. Results obtained by chaining Fisher indexes across a minimum-spanning tree are compared with the Penn World Table.

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