Measuring Price Dierences Across Countries and Time in the European Union

Robert J. Hill
School of Economics University of New South Wales Sydney 2052, Australia
Tel. 61-2-9385-3076, Fax. 61-2-9313-6337 E-Mail. r.hill@unsw.edu.au

October 14, 2002

This paper considers the problem of how to construct price indexes on a panel data set. First a suitable panel data set is constructed by merging Eurostats Harmonized Index of Consumer Prices (HICP) with a cross-section of OECD data. Second, seven dierent methods for constructing price indexes on a panel are proposed. These are then applied to the merged HICP/OECD data set. Temporal and spatial price indexes are computed for the 15 member countries of the European Union over the period 1995-2000. The paper concludes by testing whether price levels and relative prices have converged over this period. (JEL C43, E31, O47) KEYWORDS: Price Index; Price Level; Panel Data; Spanning Tree; Temporal Consistency; Spatial Consistency; Convergence An earlier version of this paper was presented at the 27th General Conference of the International Association for Research in Income and Wealth, Djurhamn, Sweden, 18-24 August 2002.

1. Introduction Comparing the purchasing power of currencies and price levels across countries in the European Union (EU), and how they change over time, is an issue of interest to national governments, the European Central Bank, rms and households. To compare simultaneously price levels and changes in the price level requires the application of index number methods to a panel data set. This is an issue that has received very little attention in the index number literature, at least in a consumer context. This is largely due to a lack of suitable data sets. The Harmonized Index of Consumer Prices (HICP) produced by Eurostat, for example, allows comparisons of ination rates and by implication changes in the price level across EU countries. However, it cannot be used to compare price levels and the purchasing power of currencies across countries in a given year since it is constructed from the consumer price index (CPI) data of each country. This means that the price level in all countries is normalized to 100 in the base year (1996). Likewise, individual countries focus their attention primarily on constructing temporal price indexes. Some countries compute regional CPIs. However, just as with the HICP, although this allows comparisons of changes in the price level across regions, it does not allow comparisons of the price level across regions at a particular point in time. Conversely, international organizations such as the OECD and World Bank make detailed cross-section comparisons across countries. Although the OECD makes such comparisons at 3 year intervals, the headings dier from one cross-section to the next and hence the cross-sections are not directly comparable. One notable exception to this general rule is the Penn World Table (PWT). The PWT is a product of the International Comparison Programme (ICP) which dates back to the 1960s and has at various times been funded by the United Nations, World Bank and OECD, and has been extensively used by economists to test for convergence in living standards across countries (see for example Barro and Sala-i-Martin (1992)). The PWT provides price levels (and 28 other aggregates) for 152 countries over the period 1950-1998 (see <http://pwt.econ.upenn.edu>). However, the PWT was constructed by splicing together at an aggregated level cross- section benchmarks with time-series data obtained from the individual countries (see Kravis, Heston and Summers (1982) and 1

Summers and Heston (1991)). Hence, in the process of constructing it, Kravis, Heston and Summers did not have to address directly the issue of price index construction on a disaggregated panel data set. This paper has three main objectives. First, it shows how Eurostats HICP data set can be combined with OECD cross-section data to produce a panel data set that can be used to make both temporal and spatial comparisons across the EU countries.1 Second, it considers the problem of how price indexes should be constructed on a panel data set. Since it combines temporal and spatial comparisons, this means that all the issues that arise in the temporal and spatial index number literatures are also relevant to panel comparisons. For example, one of the key issues in the temporal literature is the debate over the relative merits of chained and xed-base price indexes, and in the latter case the frequency with which the index should be rebased. In the spatial literature, a large number of alternative multilateral formulae have been proposed, and there is still widespread disagreement as to which formula is best (see Hill (1997)). In addition, in a panel comparison, there is the question of whether to maintain either temporal or spatial consistency. A panel comparison is temporally consistent if it is country separable, i.e., the overall comparison can be broken up into a series of separate temporal comparisons for each country that are then somehow linked together. Similarly, a panel comparison is spatially consistent if it is time separable, i.e., the overall comparison can be broken up into a series of separate spatial comparisons for each year. Seven dierent methods for constructing price indexes on a panel data set are proposed, one of which maintains temporal consistency, three of which maintain spatial consistency and three that maintain neither. These methods are then used to construct price indexes for the 15 member countries of the EU over the period 1995-2000, and the sensitivity of the results to the choice of method are compared. Finally, price levels and relative prices are compared across the EU to determine whether they are converging or diverging over time. We nd evidence of convergence
1

Here we use the terminology spatial to refer to comparisons across countries (or regions) at a

particular point in time, and temporal to denote comparisons for a given country (or region) across dierent points in time.

in price levels but divergence in relative prices. We conclude by discussing some of the implications of these ndings. 2. Constructing a Panel Data Set The Harmonized-Index-of-Consumer-Prices (HICP) covers the period 1995-2000, and consists of annual prices and quantities for 96 distinct headings, and country weights for the 15 member countries of the European Union (EU).2 However, not all headings are available for all countries. To ensure comparability, in some cases we use more aggregated headings. In consequence, the number of headings is reduced to 82. For all countries, the price for each heading is normalized to 100 in 1996. The quantities each year sum to 1000 for each country. The country weights also sum to 1000. In addition, monthly prices for the 96 headings are also available. However, there are no corresponding quantities and country weights at the monthly frequency. Hence our analysis here focuses exclusively on the annual data. Using this data set it is possible to construct temporal price indexes that measure changes in the purchasing power of currencies and the price level in EU countries over time. However, it is not possible to construct spatial price indexes that compare the purchasing power of currencies and the price level at a given point in time. Such comparisons can be made using OECD cross-section data. Since 1990 the OECD makes detailed cross-section comparisons of GDP at three-year intervals of its member countries and associated countries in Eastern Europe and the Confederation of Independent States (CIS). This means that two sets of detailed cross-section price and quantity data are available during the period 1995-2000: namely for 1996 and 1999. The aim of this paper is to simultaneously compute both temporal and spatial price indexes for the EU member countries. To do this it is necessary to merge the EU and OECD price data at the basic heading level in either 1996 or 1999. Here we use the 1996 data which contains 162 headings. The rst step is to remove the headings in the OECD data set relating to capital formation and government consumption, since there are no corresponding HICP headings. This still leaves 141 OECD headings, which
2

For a thorough review of the HICP and its properties see Diewert (2002a).

must then be matched with the 82 HICP headings. The harmonized data set was constructed to have exactly the same headings as the HICP data set. Only 39 OECD and HICP headings could be matched up exactly. Of the remaining 43 headings in the harmonized data set, 23 were created by matching more than one OECD heading with one HICP heading. For example, 6 OECD headings were combined to match the HICP heading bread and cereals. The OECD headings were merged using the EKS price index formula (see below). Of the remaining 20 headings, in 7 cases an OECD heading was applied to 2 HICP headings, in 1 case an OECD heading was applied to 3 HICP headings, and in the last case 2 OECD headings were matched with 3 HICP headings. The exact matching of headings is shown in Table 1. Insert Table 1 Here Once the harmonization of the two data sets in 1996 is complete, the nal step is to scale up or down accordingly each price heading in the HICP data set for each country in 1995 and 1997-2000. As discussed above, in the original HICP data set the prices of all headings in 1996 are normalized to 100. In the harmonized data set like the OECD data set the prices in 1996 are normalized to 100 for only one country (Austria). The choice of reference country does not aect the results. Using this harmonized data set, it is now possible to make spatial as well as temporal comparisons across the 15 EU countries. 3. Bilateral and Multilateral Methods The set of time periods is indexed by t = 1, . . . , T , the set of countries by k = 1, . . . , K and the set of commodity headings by i = 1, . . . , N . The price and quantity
i data of commodity i for country k in period t are denoted, respectively, by pi and qkt . kt

(i) Bilateral Price Indexes Let Pjs,kt denote a bilateral price index comparison between country j in time period s and country k in time period t. Four important bilateral formulae are Paasche,

Laspeyres, Fisher, and Trnqvist.3 These indexes are dened below: o

P Paasche : Pjs,kt = N i=1 N i=1 i pi qkt kt , i pi qkt js i pi qjs kt , i pi qjs js

(1)

L Laspeyres : Pjs,kt = F Fisher : Pjs,kt = N

N i=1 N i=1

(2) (3)
i pi qjs js . N i i i=1 pjs qjs

P L Pjs,kt Pjs,kt ,

Trnqvist : o

T Pjs,kt

=
i=1

pi kt i pjs

si +si js kt 2

where sjs =

(4)

(ii) Multilateral Price Indexes Let Pjs and Pkt denote multilateral price indexes for countries j and k in time periods s and t, respectively. Multilateral indexes, by construction, are transitive. Hence a bilateral comparison of prices made using a multilateral formula can be expressed as follows: Pjs,kt = Pkt . Pjs

The bilateral formulae discussed in the previous section are not transitive and hence cannot be written in this way. Graph Theory provides a useful framework for analyzing the underlying structure of multilateral price indexes. A graph consists of a collection of vertices linked by edges. In the context of spatial (temporal) comparisons, each vertex represents one of the countries (time periods) in the comparison, while each edge represents a bilateral comparison between a pair of countries (time periods). Three particularly important graphs, depicted in Figure 1 for the case of 5 vertices, are the star, complete and chain graphs. Insert Figure 1 Here A large number of multilateral formulae have been proposed for making spatial comparisons in the index number literature (see for example Balk (1996), Hill (1997) and Diewert (1999) for surveys of this literature). Many of these formulae can be
3

The history of these bilateral formulae is discussed in Diewert (1993).

described using graphs (see below). At present, however, there is still no consensus as to which formula is the best. In contrast, attention in the literature on temporal comparisons has focused on two main methods, the so-called xed-base method which uses the star graph and the chain method which uses the chain graph. A broad consensus has emerged in the temporal index-number literature that, at least for annual data, the chain graph should be used with the time periods linked chronologically and that Fisher or Trnqvist should be used to make the bilateral comparisons (see Boskin et al. (1996) o and Hill (2001)). In the context of international (spatial) comparisons three broad classes of multilateral methods in particular have received attention in the index number literature. Methods from each of these classes will be used later in the paper to construct price indexes for the 15 EU countries over the period 1995-2000. These classes are surveyed in the next three sections. 4. Average-Price Methods The rst class compares each country with an articially constructed average country. By implication, the underlying structure of such methods is a star graph with an articial average country at the center of the star. Each bilateral comparison in the star is made using the Paasche price index formula, with the articial country as the base. In the context of a spatial comparison (i.e., for a xed value of t) the price index of country k in time period t, Pkt , is calculated as follows:
P Pkt = PXt,kt = N i i i=1 pkt qkt , N i i i=1 pXt qkt

(5)

where pi denotes the price of commodity heading i in the articially constructed Xt average country in period t.4 The most widely used average-price method is Geary (1958)-Khamis (1972).5 In particular, it has been used to make comparisons across the
4

An attractive feature of average-price methods is that they generate implicit quantity indexes,

when expressed in value terms, that literally add up over dierent levels of aggregation. This additivity property is particularly useful in national accounts comparisons. 5 Another average-price method that has received attention in the literature is the Ikl (1972) method e (see Dikhanov (1994)). A number of other average-price methods are discussed in Hill (2000).

OECD countries and by the International Comparison Program (ICP) to construct the Penn World Table.6 The Geary-Khamis average prices, pi , are computed as follows: Xt pi = Xt
K k=1

pi kt K P i qjt PXt,kt j=1

i qkt

i = 1, . . . , N.

(6)

P The average-price vector, pXt , and Paasche price indexes, PXt,kt , are obtained by solving

the system of N + K simultaneous equations in (5) and (6).7 A problem faced by average-price methods is that the price vector of the articial country at the center of the star may not be representative of the prices faced by many of the countries in the comparison. This can cause substitution bias which may seriously distort estimates of both per capita income dierentials at a point in time and convergence rates over time (see Nuxoll, 1994, Dowrick and Quiggin, 1997, and Hill 2000). Geary-Khamis, in particular, will tend to underestimate per capita income dierentials across countries, since its average-price vector usually approximates more closely the price vectors of the richer countries in the comparison. Hence the substitution bias tends to be larger for poorer countries. This tendency is sometimes referred to as the Gerschenkron eect (see Gerschenkron, 1951). Equally weighted variants on GearyKhamis, such as Ikl, are also subject to substitution bias. However, for these methods e it is less obvious exactly how the results are distorted. 5. Complete Graph Methods The second class, which includes EKS (Eltet and Kves, (1964) and Szulc (1964)) o o and CCD (Caves, Christensen and Diewert (1982)), makes bilateral comparisons between all possible pairs of countries. This means that the underlying structure of such methods is a complete graph. However, to obtain an internally consistent set of multilateral price indexes from a complete graph, the bilateral price indexes must be transitivized using a formula rst proposed by Gini (1931). The price index of country k in time period t, Pkt , is calculated as follows:
K

Pkt =
6 7

[(Pjt,kt )1/K ],

j=1

See, for example, OECD (1996), Summers and Heston (1991) and World Bank (1993). Khamis (1972) proves existence and uniqueness for the Geary-Khamis system.

where Pjt,kt denotes the result of a bilateral comparison between countries j and k in period t. The EKS and CCD methods use the Fisher and Trnqvist formulae respeco tively to make each bilateral comparison. The EKS method is the most widely used complete-graph method. In particular, it is used by the OECD and Eurostat.8 As noted above, complete-graph methods make bilateral comparisons between all possible pairings of countries. It is tempting to conclude that the overall results could be improved by excluding bilateral comparisons between countries with very dierent consumption patterns. This observation provides part of the motivation for the minimum-spanning-tree (MST) method described in the next section. 6. Spanning-Tree Methods (i) The Concept of a Spanning Tree The third class of multilateral methods discussed here uses spanning trees (see Hill (1999a) and (1999b)). A multilateral comparison between K countries can be made by simply chaining together K 1 bilateral comparisons (edges), as long as the underlying graph is a spanning tree. A spanning tree is a connected graph that does not contain any cycles. In other words, any pair of vertices in the graph are connected by one and only one path of edges. The reason why there must be no cycles in the graph is to ensure that the multilateral price indexes are transitive and hence internally consistent. A total of K K2 dierent spanning trees are dened on a set of K vertices. Three examples of spanning trees dened on the set of 5 vertices are shown in Figure 2.9 Insert Figure 2 Here The resulting set of multilateral price indexes depends both on the choice of formula used for making the bilateral comparisons and on the choice of spanning tree. The bilateral comparisons should be made using a superlative formula such as Fisher or Trnqvist.10 Since superlative formulae satisfy the country reversal test (i.e., Pjs,kt = o
8 9 10

See OECD (1995) and Eurostat (1983). Both the star and chain graphs in Figure 1 are also examples of spanning trees. See Diewert (1976, 1978) and Hill (2002) for a denition and discussion of the properties of su-

perlative indexes.

1/Pkt,js ), there is no need for directional arrows on the edges in the spanning tree to identify the base country in each bilateral comparison. The choice of spanning tree is more problematic. A criterion is needed for deciding which edges (bilateral comparisons) to include and which to exclude. Ideally, we should use whichever bilateral comparisons are most reliable. Reliability in this context is measured by the sensitivity of a bilateral comparison to the choice of index number formula. The less sensitive a bilateral comparison is to the choice of formula, the more condence we can have in the result. (ii) Paasche-Laspeyres Spreads A number of alternative criteria could be used for measuring the sensitivity of the results of a bilateral comparison to the choice of formula (see Diewert (2002b)). However, here we follow Hill (1999a) and use Paasche-Laspeyres spreads (PLS). The PLS between country j in period s and country k in period t is dened as P LSjs,kt
L Pjs,kt = ln P Pjs,kt

The main attraction of the PLS is that it equals zero if either the price data satisfy the conditions for Hickss (1946) composite commodity theorem (i.e., pi = pi i) or kt js the quantity data satisfy the conditions for Leontiefs (1936) aggregation theorem (i.e.,
i i qkt = qjs i). In the rst case, all bilateral price index formulae give the same answer

(i.e., Pjs,kt = ), while in the second case all bilateral quantity index formulae give the same answer (i.e., Qjs,kt = ). Given that price indexes can be derived implicitly from quantity indexes via the factor reversal test, it follows that in both cases there is no index number problem since the correct price index is exactly determined. Therefore, we can have a high degree of condence in the results of a bilateral comparison with a small PLS, since this suggests that the underlying data are broadly consistent with either Hicks or Leontief aggregation, and the comparison is relatively insensitive to the choice of index number formula. In addition, in the case of homothetic preferences, since Paasche and Laspeyres price indexes bound the cost-of-living index, a Fisher price index (which by construction lies between Paasche and Laspeyres) must converge on 9

the cost-of-living index as the PLS approaches zero. (iii) Minimum-Spanning Trees A complete graph dened over K vertices has K(K 1)/2 edges. Each vertex corresponds to a country and each edge to a bilateral comparison between two countries. The minimum-spanning-tree method for computing multilateral price indexes requires a weight to be placed on each edge (bilateral comparison). Using the Paasche- Laspeyres spreads, P LSjt,kt , as weights, the minimum-spanning tree for year t is the spanning tree with the smallest sum of weights on its edges. More precisely, let k = 1, . . . , K K2 index the set of all possible spanning trees dened on K vertices, and m = 1, . . . , K 1 index the set of PLS in a particular spannning tree (all spanning trees dened on K vertices have K 1 edges). In other words, P LS km denotes the mth PLS in the kth spanning tree. The objective is to nd the spanning tree k that solves the following problem:
K1

Mink=1,...,K K2
m=1

P LS km .

It turns out that this problem can be easily solved using Kruskals algorithm.11 Kruskals algorithm selects sequentially the edges (bilateral comparisons) with the smallest weights (in our context PLS), subject to the constraint that adding each edge does not create a cycle. The program terminates once K 1 edges have been selected, since at this point it is no longer possible to select any more edges without creating a cycle. The resulting graph is the minimum-spanning tree.12 If the Paasche-Laspeyres spreads are used as weights, a reasonable case can be made for arguing that the resulting minimum-spanning tree is the spanning tree that minimizes the sensitivity of the multilateral price indexes to the choice of bilateral index number formula (see Hill (1999a)). This is because it is constructed from the bilateral comparisons that are least sensitive to the choice of formula.
11

See Hill (1999a, 1999b) for a more in depth analysis of the minimum-spanning-tree method. More

detailed explanations of Kruskals algorithm and the concept of a minimum-spanning tree can be found in any introductory book on Graph Theory. For example, see Wilson (1985).
12

A proof of this result can be found in Wilson (1985).

10

Multilateral (transitive) price indexes are obtained by chaining a superlative price index such as Fisher or Trnqvist across the minimum-spanning tree. o 7. Constructing Multilateral Price Indexes on a Panel Data Set (i) Methodology and Results In this section, 7 dierent methods are proposed for constructing price indexes on a panel data set. These methods are then used to compute price indexes for the 15 EU countries over the period 1995-2000. Method 1: Minimum-spanning-tree (MST) The MST method can easily be applied to a panel data set. In this context, each vertex corresponds to a country-time period. This means there will be a total of KT vertices. In general, this approach will maintain neither spatial nor temporal consistency. The MST results in Table 2 were obtained by chaining Fisher price indexes across the minimum-spanning tree in Figure 3.13 The minimum-spanning tree itself was derived by applying Kruskals algorithm to the 84 by 84 matrix of Paasche-Laspeyres spreads (PLS) dened on the set of country-time periods. Method 2: Temporally-consistent spanning tree (TCST) One way to construct price indexes on a panel data set is to break up the overall comparison into a series of separate temporal comparisons for each country and then at the end link these temporal comparisons together. One attraction of this approach is that it will maintain the temporal consistency of the data. The temporal comparisons can then be made by chaining Fisher or Trnqvist price indexes chronologically, as o advocated in the temporal index number literature. The dicult part of this approach is deciding how the temporal results for each country should be linked together to form a panel. If the panel data set itself was constructed by combining a single cross-section comparison with time-series data from
13

The country codes in Figure 3 are A-Austria, B-Belgium, D-Denmark, Fi-Finland, Fr-France,

Ge-Germany, Gr-Greece, Ir-Ireland, It-Italy, L-Luxembourg, N-the Netherland, P-Portugal, Sp-Spain, Sw-Sweden, UK-United Kingdom. A96 denotes Austria in 1996.

11

each of the individual countries (as is the case here), then it might seem natural to construct the price indexes in the same way. However, this is by no means the only way to proceed. Once the spatial and temporal data sets have been merged to create a panel of price and quantity headings for each country in each time period, the temporal results can be linked together in any number of ways, each of which will generate a dierent set of overall results. The TCST results in Table 2 were obtained by chaining Fisher price indexes across the spanning tree in Figure 4. Figure 4 is constructed from 15 chronological-chain trees (one for each EU country). These trees were linked together to form a spanning tree by selecting the 14 edges linking countries that minimize the sum of the Paasche-Laspeyres spreads of the resulting spanning tree. These edges were selected using a modied PLS matrix.14 The spanning trees in Figures 3 and 4 share 62 common edges (out of a total of 83 edges). Alternatively, a TCST could be constructed by linking together the 15 chronologicalchain trees using the minimum-spanning tree of a particular year. In our data set, all 15 countries are represented in the years 1996, 1997, 1998 and 1999. The minimumspanning trees for each of these years are depicted in Figure 5. We can choose between these four TCSTs on the basis of their summed PLS. One attraction of this approach is that the comparisons between countries all take place in the same year. Nevertheless, the TCST in Figure 4 must by construction have a smaller summed PLS. Another alternative to the TCST in Figure 4 would be to use an average spatial minimum-spanning tree to link the 15 chronological-chain trees. This would require the construction of average PLS between each pair of countries. For example, the APLS between the UK and the Netherlands would be constructed as follows:
99

AP LSN,U K =

i (P LSN,U K ).

i=96

The summation is restricted to the years 1996-1999, since these are the years in which
14

A total of 69 bilateral comparisons between adjacent years in each country can be made for this

data set. Kruskals algorithm will be forced to select these 69 edges if the corresponding PLS are all given suciently low dummy values in the PLS matrix. The algorithm is then left to select the remaining 14 edges, which will by construction link the 15 chronological-chain trees together.

12

all 15 countries are present in the HCICP data set. The average spatial minimumspanning tree is constructed by applying Kruskals algorithm to the 15 by 15 matrix of APLS. The attraction of this method is that spatial MSTs tend to be rather unstable, as can be seen from Figure 5. The average spatial MST, by construction, will be some kind of average of these spatial MSTs. Although these other TCST methods warrant further investigation, the only TCST considered in the next section is the one depicted in Figure 4. Method 3: Spatially-consistent spanning tree (SCST) The SCST results were obtained by chaining Fisher price indexes across the spanning tree in Figure 5. Figure 5 is constructed by linking together 6 trees. Each tree is a minimum-spanning tree dened over all the vertices in a particular year. These 6 trees were then linked together again using a modied PLS matrix.15 The 5 edges that link the spatial trees in Figure 5 are Sp96-Sp99, Ge99-Ge00, UK97-N99, Ir98-Ir99, Sw95It98.) The minimum-spanning tree in Figure 3 is, by construction, the spanning tree with the minimum summed PLS. The spanning trees in Figures 4 and 5 can be thought of as constrained minimum-spanning trees, since they minimize the summed PLS, subject to a constraint. The constraint for the TCST is that the time periods for each country must be linked chronologically. The constraint for the SCST is that the observations for each year must be grouped in clusters. The reasonableness of these constraints can be judged by comparing the summed PLS of each spanning tree. The results are as follows: P LSM ST = 0.1535, P LST CST = 0.1792, P LSSCST = 1.6812. In other words, the TCST is only slightly suboptimal (in terms of minimizing the sensitivity of the overall results to the choice of bilateral formula) since its summed PLS is only marginally larger than the minimum possible. Again, this is not surprising given that it shares 62 of its 83 edges with the MST. In contrast, the summed PLS of the SCST is
15

The 6 minimum-spanning trees (corresponding to each of the 6 years) contain a total of 78 edges.

By specifying suciently low dummy values for the PLS corresponding to these 78 edges in the PLS matrix, Kruskals algorithm will be forced to select them. The algorithm is then left to select the remaining 5 edges which will link the 6 annual minimum-spanning trees together.

13

about 10 times larger. This suggests that, in this case, temporal consistency is a more reasonable restriction to impose on the data than spatial consistency. Method 4: Spatially-consistent EKS (SCEKS) Once the overall comparison has been broken up into a series of separate spatial comparisons, as in Figure 5, a standard multilateral formula such as EKS or Geary-Khamis can be used to make each of the spatial comparisons, rather than using spatial trees. This is the approach followed by the SCEKS method. A separate EKS comparison is made for each year. These 6 sets of results are then linked using the same 5 edges as the SCST method (in each case these bilateral comparisons are made using the Fisher price index formula). Method 5: Spatially-consistent Geary-Khamis (SCGK) The SCGK method diers from the SCEKS method only in that it uses the GearyKhamis formula rather than EKS to make the spatial comparisons for each year. Method 6: EKS The EKS method is applied directly to the whole panel of country-time periods. This approach has two disadvantages. First, it maintains neither temporal nor spatial consistency. Second, as new time periods are added to the data set, all the results will change. This is why multilateral methods such as Geary-Khamis and EKS are rarely used to make temporal comparisons. Method 7: Geary-Khamis (GK) The GK method is applied directly to the whole panel of country-time periods. In this case, the Geary-Khamis average price vector is an average of the price vectors of the KT country-time periods. The same criticisms as above apply. Insert Figure 3 Here Insert Figure 4 here

14

Insert Figure 5 Here Price indexes for the 15 EU countries over the period 1995-2000 are shown in Table 2. For all 7 multilateral methods, the price index for the UK in 1996 is normalized to 1. For example, referring to Table 2, we can deduce that, according to the MST method, one British pound in 1996 had the same purchasing power as 57 Belgian francs in 2000. Insert Table 2 Here (ii) Sensitivity of the Results to the Choice of Multilateral Method Greece-98 (Gr98) is the observation in Table 2 that is most sensitive to the choice of method. The number of 1998 Drachmas that have the same purchasing power as one 1996 British pound varies from 352 to 407.16 By the standards of international comparisons, the results in Table 2 are not that sensitive to the choice of method. This is probably because the set of EU countries are reasonably homogeneous, The similarity of the overall results generated by each method can be compared using the similarity index, Lab , dened below: Lab =
T K b 1 Pkt ln a KT 1 t=1 k=1 Pkt

1 KT

b Pkt ln a Pkt t=1 k=1

a where Pkt denotes the price index in country k in period t obtained using method

a. The measure Lab is just the standard deviation of the logarithm of the price-index relatives generated by methods a and b. Two attractive features of Lab are rst that it is symmetric (i.e., Lab = Lba ), and second that it is invariant to the choice of base countrytime period. For example, in Table 2 the reference country-time period is the UK in 1996. However, if it was changed say to Germany in 2000, Lab would be unaected. Table 3 shows the Lab measures obtained from comparisons between all possible pairs of the 7 multilateral methods. Not surprisingly, the results obtained using the MST and TCST methods are the most similar (this is not surprising since the underlying spanning trees share 62 of the same edges). The MST and EKS results are also close.
16

It should be noted that the observed sensitivity of each observation to the choice of method is not

independent of the choice of base country-time period.

15

Given that the rst 5 methods in Table 3 all use Fisher price indexes it is not surprising that they tend to give more similar results. The results obtained using the TCST and SCGK methods are the most dissimilar. Insert Table 3 Here 8. Testing for Convergence of Price Levels and Relative Prices (i) Comparing Price Levels The price level in country k in period t, Zkt , is dened here as follows: Zkt = Pkt , Xkt

where Xkt denotes the exchange rate of country k in period t expressed as the number of units of currency in country k that can be exchanged for one unit of currency in the base country.17 The resulting price levels for each of the 7 multilateral methods considered above are shown in Table 4. For each year, the price level in Germany is normalized to one. Insert Table 4 Here The price-level rankings of the 7 multilateral method are very similar, although not identical. The three Scandinavian countries (Denmark, Sweden and Finland) have the highest price levels in the EU (about 20 percent higher than Germany), while Greece, Portugal and Spain have the lowest (about 25 percent lower than Germany). The pricelevel rankings do not change much from one year to the next. This systematic tendency towards lower price levels in poorer countries (in our case Greece, Portugal and Spain) can be explained by the fact that nontradables, in general, are more labor intensive and hence relatively cheaper in these more labor abundant countries. In other words, there is no reason to expect purchasing power parity to hold even in the long-run unless real income levels converge (see Kravis and Lipsey (1983) and Bhagwati (1984)). Dierences in price levels across the EU in a given year can be measured by the standard deviation of the logarithm of the price level, Zkt , across the set of countries
17

The exchange rates used are yearly averages obtained from the Yearbook of International Financial

Statistics (2001) published by the IMF.

16

k = 1, . . . , K. It =

K 1 1 ln(Zkt ) K 1 k=1 K

K j=1

ln(Zjt )

It is invariant to changes in the choice of base country (in this case Germany). Estimates of It over the period 1995-2000 for each of the 7 multilateral methods are shown in Table 5. Insert Table 5 Here A decrease in It over time signals that price levels are converging. This corresponds to the concept of -convergence in the growth-convergence literature (see Barro and Sala-i-Martin (1992), Quah (1996), and Dowrick and Quiggin (1997).) Interpretation of the results is complicated by the fact that the set of countries is not the same across all years. The years 1996-1999 cover all 15 EU countries. However, Greece is missing in 2000 and Austria, Denmark, France, Luxembourg and the UK are missing in 1995. Hence we exclude 1995 from Table 5, and provide two sets of results, one covering the period 1996-1999 for all 15 EU countries, and one excluding Greece covering the period 1996-2000. Between 1996 and 1999, price levels showed signs of convergence (i.e., It fell over time) for all multilateral methods except SCGK. Excluding Greece, over the period 1995-2000 price levels converged for only 4 of the 7 multilateral methods. This suggests that at least part of the convergence observed for the whole EU is driven by increases in the price level in Greece that have brought it more into line with the rest of the EU. Removing Greece reduces It in every year, but by more in the earlier years. (ii) Comparing Relative Prices The similarity of the price vectors of two countries j and k in period t can be measured using a variant on the measure Lab discussed above. However, now what is measured is the standard deviation of the logarithm of the price relatives, pi /pi , across jt kt the set of goods i = 1, . . . , N instead of the set of countries.
t Sjk

1 N 1

N l=1

pl ln kt pl jt

1 N

pi ln kt pi jt i=1

17

t t t Again, the log transformation ensures that Sjk is symmetric (i.e., Sjk = Skj ).18

A measure of the similarity of relative prices across the EU in a given year is

t t obtained by taking the geometric mean of Sjk , denoted by G(Sjk ), across all pairs of

countries.
t G(Sjk )

=
j=1 k=1

t Sjk

1/K 2

Estimates of

t G(Sjk )

for the period 1996-1999 for all 15 EU countries and for 1996-

2000 excluding Greece are shown in Table 6. Irrespective of whether or not Greece is included, the results suggest that relative prices have diverged over this period.19 Insert Table 6 Here 9. Implications of Findings Our nding of slight price level convergence in Table 5 is consistent with Rogers (2001). Rogers computes price level indexes for 18 countries (including all members of the European Union) in 1990, 1995 and 1999 using a data set constructed by combining price data from the Economist Intelligence Unit (EUI) with HICP expenditure data.20,21 Rogers nds evidence of faster convergence in the rst half of the 1990s than in the second half (the period covered in this paper). Rogers then goes on to discuss
18

It may be preferable to weight each heading by its average expenditure share for the two countries,

t rather than giving equal weight to each heading as is currently the case in Sjk . 19 It is not clear how robust the ndings with regard to convergence in Tables 5 and 6 are to changes

in the level of aggregation of the data. The HICP headings are already quite aggregated. If more disaggregated data were used, the results might be dierent. 20 The EUI data set consists of prices of 168 goods and services in 26 cities in 18 countries. When data on two or more cities in the same country were available, Rogers averaged the prices, to obtain a single set of prices for each country. Expenditure weights were obtained by matching the goods and services in the EUI data set with the headings in the HICP. If more than one good or service were matched with a particular HICP heading, then Rogers used an average price. 21 This data set is a panel, although Rogers uses only one set of expenditure shares (corresponding to an unspecied year). This means that all his price indexes are of either the Paasche or Laspeyres variety. Nevertheless, this data set could be used to address some issues of price index construction on panel data sets. Given Rogers is interested primarily in price level convergence, however, he does not address this issue.

18

the implications of price level convergence for the European Central Bank (ECB). A necessary implication is that countries with initially lower price levels on average must experience higher rates of ination during the transition. Diering ination rates within the Euro-zone countries means that monetary policy may be too stimulative in some countries and too restrictive in others. This problem could become more severe if the Euro-zone is widened to include relatively low-price countries in Eastern Europe. Our second nding that relative prices have diverged slightly over the same period (1995-2000) is at rst glance somewhat surprising, given the concurrent tendencies towards greater economic integration in the European Union, and the observed convergence in price levels. As far as we know, this trend has not previously been observed. As noted above, it is not clear how robust it is, and whether the same trend would be observed for more disaggregated data. However, assuming the result is not spurious, the challenge then is to reconcile it with the observed trend towards greater economic integration and price level convergence. One possible explanation derives from the diering price trends observed for tradables and nontradables. Suppose for simplicity that there are only two goods (or services), one of which is tradable (cars), and one that is not (haircuts). Also, let pc Ge,t denote the price of a car in Germany in period t (measured in Deutchmarks or Euros), ph the price of a haircut in Greece (measured in Drachmas or Euros), and XGe,t /XGr,t Gr,t the Deutchmark/Drachma exchange rate. Given that haircuts are more labor intensive, and labor is relatively cheaper in Greece, it follows that we would expect the following inequality to hold (see Kravis and Lipsey (1983) and Bhagwati (1984)): pc ph XGe,t < Ge,t < Ge,t . XGr,t pc ph Gr,t Gr,t It is presumed here that the law of one price does not hold for traded goods because of trade barriers, and that as a result of the higher labor costs in Germany, even traded goods are more expensive there. The impact of increased economic integration in the European Union is to reduce trade barriers. This causes some convergence to the law of one price for traded goods, but not for nontraded goods. Assuming that the exchange rate does not change (which 19

must be the case once the Euro parities are xed), this means that pc pc Ge,t+k < Ge,t pc pc Gr,t Gr,t+k ph ph Ge,t+k = Ge,t h pGr,t+k ph Gr,t k > 0,

k > 0.

If the relative price similarity index between Germany and Greece is now computed
t+k t over cars and haircuts, we will nd that SGe,Gr < SGe,Gr . In other words, economic

integration will cause relative prices to diverge. However, using examples that focus on just two goods can be misleading. Suppose now that there are N1 traded goods and N2 nontraded goods. Economic integration should now cause convergence in the relative prices of the N1 traded goods. This must be balanced against the divergence in the relative prices of traded and nontraded goods. It is not clear a priori which eect will dominate. 10. Conclusion This paper has focused on three main issues. First, a new data set is constructed by merging a detailed cross-section of OECD data in 1996 with the HICP. Using this data set, comparisons of the price level can be made across countries and time. Second, a number of alternative methods are proposed for constructing price indexes on a panel data set. This is an issue that has received very little attention in the index number literature, presumably due to the lack of suitable data sets. Until now, attention in the index number literature has been split between spatial and temporal comparisons. Sinec panel comparisons combine both spatial and temporal comparisons, all the issues that arise in both literatures are relevant to panel comparisons. Given the greater consistency of temporal data (in terms of construction) and the fact that changes in prices and expenditure patterns over time tend to be rather smaller than dierences in prices and expenditure across countries, we conclude that it is usually preferable to try and build up a panel comparison from temporal rather than spatial comparisons. This is the approach followed by the TCST method. The TCST and the other panel methods are compared empirically using the merged HICP/OECD data set. Third, the 20

data set is used to test for convergence in price levels and relative prices across the European Union. The main nding of price level convergence combined with relative price divergence may be attributable to the dierent impacts of economic integration on the relative price of traded and nontraded goods. This warrants further investigation. References Balk. B. M. (1996), A Comparison of Ten Methods for Multilateral International Price and Volume Comparison, Journal of Ocial Statistics 12(2), 199-222. Barro, R. and X. Sala-i-Martin (1992), Convergence, Journal of Political Economy 100(2), 223-251. Bhagwati, J. N. (1984), Why Are Services Cheaper in the Poor Countries? Economic Journal 94, 279-286. Boskin, M. J., E. R. Dulberger, R. J. Gordon, Z. Griliches, and D. Jorgensen (1996), Toward a More Accurate Measure of the Cost of Living, Final Report to the Senate Finance Committee from the Advisory Commission to Study the Consumer Price Index. Caves, D. W., L. R. Christensen and W. E. Diewert (1982), Multilateral Comparisons of Output, Input and Productivity using Superlative Index Numbers, The Economic Journal 92, 73-86. Diewert, W. E. (2002a), Harmonized Indexes of Consumer Prices: Their Conceptual Foundations, Paper Presented at the Joint Meeting of the Centre for Economic Policy Research and the European Central Bank: Issues in the Measurement of Price Indices, Frankfurt, November 16-17, 2001. Diewert, W. E. (2002b), Similarity and Dissimilarity Indexes: An Axiomatic Approach, Mimeo. Diewert, W. E. (1999), Axiomatic and Economic Approaches to International Comparisons, in Heston, A., and R. E. Lipsey (ed.), International and Interarea Comparisons of Income, Output and Prices, NBER, University of Chicago Press: Chicago, 13-87. 21

Diewert, W. E. (1993),The Early History of Price Index Research, in Essays in Index Number Theory, Volume 1, (ed.) W. E. Diewert and A. O. Nakamura (Amsterdam: North-Holland, pp. 33-65. Diewert, W. E. (1976), Exact and Superlative Index Numbers, Journal of Econometrics 4, 115-145. Dikhanov, Y. (1994), Sensitivity of PPP-Based Income Estimates to Choice of Aggregation Procedures, Paper Presented at the 23rd Biannual Conference of the International Association for Research in Income and Wealth, St. Andrews, New Brunswick, Canada, August 1994. Dowrick, S. and J. Quiggin (1997), True Measures of GDP and Convergence, American Economic Review 87, 41-64. Eltet, O. and P. Kves (1964), On a Problem of Index Number Computation Relating o o to International Comparison, Statisztikai Szemle 42, 507-518. Eurostat, (1983), Comparison in Real Values of the Aggregates of the European System of Integrated Economic Accounts, Luxembourg: Eurostat. Geary, R.G., (1958), A Note on the Comparison of Exchange Rates and PPPs between Countries, Journal of the Royal Statistical Society, Series A, 121, 97-99. Gerschenkron, A, (1951), A Dollar Index of Soviet Machinery Output, 1927-28 to 1937, Rand Corporation, Santa Monica, CA. Gini, C., (1931), On the Circular Test of Index Numbers, International Review of Statistics, Vol.9, No.2, 3-25. Hicks, J. R., (1946), Value and Capital, Second Edition, Oxford: Clarendon Press. Hill, R. J. (2002), Superlative Index Numbers: Not All of Them are Super, Mimeo. Hill, R. J. (2001), Measuring Ination and Growth Using Spanning Trees, International Economic Review 42(1), 167-185. Hill, R. J. (2000), Measuring Substitution Bias in International Comparisons Based on Additive Purchasing Power Parity Methods, European Economic Review 44, 145-162. 22

Hill, R. J. (1999a), Comparing Price Levels Across Countries using Minimum Spanning Trees, Review of Economics and Statistics 81(1), 135-142. Hill, R. J. (1999b), International Comparisons Using Spanning Trees, in Heston, A., and R. E. Lipsey (ed.), International and Interarea Comparisons of Income, Output and Prices, NBER, University of Chicago Press: Chicago, 109-120. Hill, R. J. (1997), A Taxonomy of Multilateral Methods for Making International Comparisons of Prices and Quantities, Review of Income and Wealth 43(1), 49-69. Ikl, D. M. (1972), A New Approach to the Index Number Problem, Quarterly e Journal of Economics 86, 188-211. Khamis, S. H., (1972), A New System of Index Numbers for National and International Purposes, Journal of the Royal Statistical Society, Series A, 135, 96-121. Kravis, I. B., A. Heston, and R. Summers (1982), World Product and Income: International Comparisons of Real Gross Product. Published for the World Bank by Johns Hopkins University Press: Baltimore. Kravis, I. B. and R. Lipsey (1983), Toward an Explanation of National Price levels, Princeton: Princeton Studies in International Finance, No. 52. Leontief, W., Composite Commodities and the Problem of Index Numbers, Econometrica 4, (1936), 39-59. Nuxoll, D. A. (1994), Dierences in Relative Prices and International Dierences in Growth Rates, American Economic Review 84, 1423-1436. Organisation for Economic Co-operation and Development, (1995), Purchasing Power Parities and Real Expenditures: EKS Results - Volume I - 1993, Paris: Statistics Directorate, OECD. Organisation for Economic Co-operation and Development, (1996), Purchasing Power Parities and Real Expenditures: GK Results - Volume II - 1993, Paris: Statistics Directorate, OECD. Quah, D. T. (1996), Twin Peaks, Growth and Convergence in Models of Distribution Dynamics, Economic Journal 106, July, 1045-1055. 23

Rao, D. S. Prasada (1999), Weighted EKS Method for Aggregation Below Basic Heading Level Accounting for Representative Commodities, Short Note Prepared for the ICP Unit at the OECD. Rao, D. S. Prasada and M. Timmer (2000), Multilateralization of Manufacturing Sector Comparisons: Issues, Methods and Empirical Results, Research Memorandum GD-47, Groningen Growth and Development Centre, University of Groningen. Rogers, J. H. (2001), Price Level Convergence, Relative Prices, and Ination in Europe, International Finance Discussion Paper 699, Board of Governors of the Federal Reserve System. Summers, R. and A. Heston (1991), The Penn World Table (Mark 5): An Expanded Set of International Comparisons, 1950-1988, Quarterly Journal of Economics 106, 327-368. Szulc, B. (1964), Indices for Multiregional Comparisons, Przeglad Statystyczny 3, Statistical Review 3, 239-254. Wilson, R. J., (1985), Introduction to Graph Theory, Third Edition, New York: Longman. World Bank (1993), Purchasing Power of Currencies: Comparing National Incomes Using ICP Data, Washington, DC: International Economics Department, The World Bank.

24

Appendix: Reconciling Temporal and Spatial Price Indexes An issue closely related to the construction of price indexes on panel data sets is the reconcilation of temporal and spatial price indexes. In this paper we combine an OECD cross-section with the HICP at a low level of aggregation, and then consider how price indexes should be constructed across the whole panel. Alternatively, separate spatial and temporal price indexes could be constructed rst, before the results are merged. This process is straightforward as long as there is only a single set of spatial comparisons. However, in practice, this is often not the case. For example, the OECD makes detailed spatial comparisons at 3 year intervals. Suppose price indexes are constructed for 1996 using the OECD data, and that these results are combined with HICP price indexes for each of the 15 EU countries covering the period 1995-2000. An implicit set of spatial price indexes for 1999 can be obtained from these data sets. Inevitably, these implicit price indexes for 1999 will be inconsistent with the actual OECD price indexes for 1999. In other words, as soon as there is more than one spatial benchmark, the spatial and temporal results will tend to be inconsistent with each other. This issue can be dealt with in a number of ways, four of which are outlined below. Method 1: All subsequent spatial benchmarks after 1996 are ignored. This method is unsatisfactory since it does not make sucient use of the available data. Also, sooner or later a new spatial benchmark will be required anyway, as the implicit spatial comparisons derived from the temporal price indexes and 1996 spatial benchmark will become less and less reliable the further away we move from 1996. Method 2: Once the new set of spatial results for 1999 become available, all panel price indexes (including those before 1999) are recomputed using the new benchmark. This method is unsatisfactory since it also does not make sucient use of the available data. In addition, it fails to maintain temporal xity. That is, once a price index has been computed, if at all possible it should not be revised at a later date. Method 3: For results from 1999 onwards, the new benchmark of 1999 is used. However, 25

results for years before 1999 are not changed. This requires the temporal price indexes for 1998-9 to be ignored for all but one country, and the implicit temporal price indexes derived from the 1999 spatial comparison to be used instead. This method satises temporal xity and makes use of all the spatial benchmarks. However, it discards the temporal price indexes for 1998-9 for all but one country. Also, it does not treat all countries symmetrically. It is not clear which country should be used to link 1998 to 1999. One possibility would be to use the country with the smallest PLS in a comparison between 1998 and 1999. Method 4: The temporal results for 1998-9 and the spatial results for 1999 are obtained by applying the EKS transitivization formula to a panel data set consisting of the 15 EU countries over the years 1998 amd 1999. The price indexes for 1998 in the panel, prior to the application of the EKS formula, are derived implicitly from the temporal price indexes for 1998-9 and the spatial price indexes for 1999. The overall results for 1998 and earlier are obtained using the 1996 spatial benchmark. This method satises temporal xity, makes use of all the spatial benchmarks and treats all countries symmetrically. Methods 3 and 4 are clearly preferable to method 1 and 2. Also, method 4 could be extended to give greater weight to the temporal price indexes in the EKS transitivization formula (assuming the temporal price indexes are considered to be more reliable) using a modied version of Raos (1996) weighted EKS method (see also Rao and Timmer (2000)).

26

FIGURE 1. EXAMPLES OF GRAPHS

t d d

d d d

d d

d d

d dt

dt

Star Graph

Complete Graph

Chain Graph

FIGURE 2. EXAMPLES OF SPANNING TREES

27

FIGURE 3. MINIMUM SPANNING TREE FOR EUROPEAN UNION (1995-2000)

It99 t It00 t Sw96 t Fi98 t Fi99 t Fi00 t

Sw95 t It98 t Sw97 t Fi96 It97 t t It96 t It95 t Ge00 t Ge99 t B97
t

Sw98 t Fi95 t L96 t L97 t L99 t B96 t B99 t Ir00 t Ir96 t N00 t

Sw99 t

Sw00 t

Fi97 t

Gr99 t L98 t Ge98 t Ge97

t

Gr98 t L00 t Sp95

t

Gr97 t

Gr95 t

B98
t

B00
t

Gr96 t Sp98 Sp96 t

t

P97 t P96 t P95 t Fr00 t

P98 t P00 t

P99 t d

B95 t d d Ir99 dt Ir98 t

Ge96 t Ge95 t A96 t A97 t UK96 t N98 t

Sp00 t A00 t A99 t A98 t

Sp99 t D00 t D99 t D97 t D98 t

Sp97 t

Fr96 t Fr97 t

Fr98 t Fr99 t UK00 t

Ir97 N97 t t d d UK99 t

D96 t

UK98 ddt UK97 t Ir95 t N99 t

N96 t

N95 t

28

FIGURE 4. TEMPORALLY CONSISTENT SPANNING TREE FOR EUROPEAN UNION (1995-2000)

B95 t Uk96 t Uk97 t Uk98 t Uk99

t

B96 t Fr97 t Ir98 t P98 t

B97 t Fr96 t Ir99 t P99 t P00

t

B98 t B99 t Ir00 t B00 t Sp99 t Sp98 t Sp97

t

N00 t N99 t N98 t N97

t

Fr00 t Ir95 t P95 t

Fr99 t Ir96 t P96 t

Fr98 t Ir97 t P97 t

Gr99 t Gr98 t Gr97 t Gr96

t

Sp00 t Ge96 Ge95 t t A00

t

Ge97
t

Uk00 t

N96 t N95 t

D96 t

D97 t

D98 t

D99 t A96 t

D00 t A97 t Fi96

t

A99 t A98 t Fi95

t

Ge98 t Ge99 t d

Sp96 t Sp95 t

Gr95 t

Fi00
t

Fi99
t

Fi98
t

Fi97
t

d Ge00 d L99 t dt It95 t Sw99 t L00 t Sw00 t

L98
t

It00 t

It99 t Sw95 t

It98 t Sw96 t

It97 t Sw97 t

It96 t Sw98 t

L97 t L96 t L95 t

29

FIGURE 5. SPATIALLY CONSISTENT SPANNING TREE FOR EUROPEAN UNION (1995-2000)

B00 t d d B96 t Uk96 t N96 t Ir96 t P96 t P00 t Sp00 t

N00 t d Ir00 dt

Uk00 t Fr00 t D99 t Sw99 t A99 t Fi99 t

d Ge99 Ir99 Fr99 t t dt d d d d d d d d Fr96 d Ge96 Sp96 Sp99 N99 P99 dt dt dt t t t d d Fr98 It96 Gr96 Ir98 B98 Uk99 d Uk97 Fi96 t t t t dt t t t d d P98 d N98 Ge98 Sw96 L98 B97 N97 t t dt t t t t d d A96 Sw98 It98 ddt Sp98 Ir97 P97 D96 Uk98 t t t t t t t Fi98 Fi95 Sw95 Gr98 Gr97 Fr97 t t t t Fi00 t L99 t
t t

D00 Sw00 t t d d L96 ddt A00 t

Ge00 L00 t t d d It00 dd t d

Gr99 It99 t t d

B99 t

It95 t Sp95 t Gr95 t Ge95 t

A98 t Ir95 t P95 t

D98 t N95 t B95 t

Sp97 t Sw97 t A97 t

Ge97 t It97 t D97 t

L97 t Fi97 t

30

TABLE 1. MATCHING OF OECD AND HICP DATA SETS

OECD Heading
1111011 1111012 1111013 1111014 1111015 1111016 1111021 1111022 1111023 1111024 1111025 1111026 1111027 1111028 1111031 1111032 1111033 1111034 1111041 1111042 1111043 1111044 1111045 1111051 1111052 1111053 1111054 1111061 1111062 1111063 1111064 1111065 1111066 1111067 1111068 1111069 1111071 1111075 1111076 1111077 1111072 1111073 1111074 1111078 1111079 1112011 1112012 1112022 1112023 1112024 1112025 1113011 1113021 Rice Flour & other cereals Bread Rusks,imperishable bakery products Pasta products Other cereals products Beef Veal Pork Lamb,mutton,goat Poultry Delicatessen Proces. & preser.meat prep.in cans,jars Edible offal and other meats Fresh and frozen fish Dried,smoked or salted fish Fresh or frozen seafood Preserv. & processed fish and seafood Fresh milk Preserved milk Other milk products Cheese Eggs and egg-based products Butter Margarine Edible oils Other animal and vegetable fats Fresh fruit Dried fruit & nuts Frozen & preserved fruit, etc. Fresh vegetables Dried vegetables Frozen vegetables Pres.vegetables & veg.-based products Potatoes, other tuber vegetables Potato products Sugar (raw and refined) Jams, jellies, honey and syrups Chocolate & oth.cocoa preparations Confectionery Coffee Tea and other infusions Cocoa (excl.cocoa preparations) Ice cream Condiments & oth.food products nec Bottled water Other soft drinks nec. Spirits and liqueurs Wine Beer Other alcoholic beverages Cigarettes Other tobacco products

HICP Heading
cp0111 Bread and cereals

cp0112 Meat

cp0113 Fish and seafood

cp0114 Milk, cheese and eggs

cp0115 Oils and fats

cp0116 Fruit

cp0117 Vegetables

cp0118 Sugar, jam, honey, chocolate

cp0121 Coffee, tea and cocoa

cp0119 Food products n.e.c. cp0122 Mineral waters, soft drinks, fruit, juices cp0211 Spirits cp0212 Wine cp0213 Beer cp022 Tobacco

TABLE 1. MATCHING OF OECD AND HICP DATA SETS

1121011 1121012 1121013 1121014 1121015 1121021 1122011 1122012 1122013 1122021 1131011 1131013 Men's clothing Ladies' clothing Children's clothing Infant's clothing Materials, yarns, accessories, etc. Repair and maintenance of clothing Men's footwear Women's footwear Children's and infant's footwear Repairs to footwear Rents of tenants in flats & houses Repair and maintenance of housing cp0311 Clothing materials

cp0312 Garments cp0313 Other articles of clothing and accessories cp0314 Cleaning, repair and hire of clothing cp032 Footwear including repair

1132011 Electricity 1132021 1132022 1132031 1132041 1141011 1141012 1141021 1142011 1142021 1143011 1143012 1143013 1143014 1143015 1143016 1143021 1144011 1144012 1144013 1144014 1144015 1144021 1144031 1144032 1144041 1144051 1150000 1161011 1161021 1162011 1162012 1162021 1162031 1163011 1163021 Town gas and natural gas Liquefield petroleum gas (butan etc.) Liquid fuels Coal, coke and other solid fuels Furniture and fixtures Carpets and other floor coverings Repairs to furniture,fixtures etc. Household textiles, other furnishings Repairs to household textiles etc. Refrigerators,freezers & fridge fr. Washing machines,spin driers etc. Cookers, hobs and ovens Heaters and air-conditioners Vacuum cleaners,polishers etc. Other major household appliances Repairs to major household appliances Glassware and tableware Cutlery and flatware Motorless kitchen & domestic utensils Motorless garden appliances Small electrical accessories Repairs to glassware,tableware etc. Cleaning and maintenance products Other non-durable household goods Laundry and dry cleaning Domestic services MEDICAL CARE Passenger vehicles Motorcycles and bicycles Tyres, tubes, parts, accessories Maintenance and repair services Motor fuels,oils and greases Oth. expenses: to pers.transport Local by bus, train, tube, tram, taxi Long distance by coach and rail

cp041 Actual rentals for housing cp0431 Materials for maintenance/repair of dwelling cp0432 Services for maintenance/repair of dwelling cp0451 Electricity cp044 Water/miscellaneous services to dwelling cp0452 Gas cp0455 Heat energy cp0453 Liquid fuels cp0454 Solid fuels cp0511 Furniture and furnishings cp0512 Carpets and other floor coverings cp0513 Repair of furniture, furnishings, floor coverings cp052 Household textiles cp0531/2 Major/small electric household appliances

cp0533 Repair of household appliances cp054 Glassware, tableware and household utensils

cp055 Tools and equipment for house and garden

cp0561 Non-durable household goods cp0562 Domestic services and household services cp06 Health cp0711 Motor cars cp071_not_711 Motor cycles, bicycles, etc cp0721 Spares parts for personal transport equipment cp0723 Maintenance of personal transport equipment cp0722 Fuels/lubricants for personal transport equip. cp0724 Other services for personal transport equip. cp0731 Passenger transport by railway cp0732 Passenger transport by road cp0735 Combined passenger transport cp0733 Passenger transport by air cp0734 Passenger transport by sea/inland waterway

1163022 Long-distance transport: air + sea

TABLE 1. MATCHING OF OECD AND HICP DATA SETS

1163031 1164011 1164021 1171011 1171012 1171021 1171022 1171031 1171032 1171033 1171034 1171035 Other purchased transport services Postal services Telephone, telegraph, telex services Radios & electro-acoustic apparatus Television-sets and videorecordes Photographic and related equipment Other durable recreational goods Records,tapes,cassettes(audi&video) Sports goods and camping equipment Games,toys and hobbies Films & oth.photographic supplies Flowers,plants,pets & rel.products cp0736 Other purchased transport services cp081 Postal services cp08233 Telephone/telefax equipment and services cp0911 Sound and picture recording equipment, etc cp0912 Photographic, cinematographic, optical equip. cp0913 Information processing equipment cp0914 Recording media cp0932 Equipment for sport, camping and recreation cp0931 Games, toys and hobbies cp0933 Gardens, plants and flowers cp0934/5 Pets, veterinary services, etc cp0915 Repair of audio-visual, photographic equipment cp092 Other major durables for recreation and culture cp0941 Recreational and sporting services

1171041 Parts & acces.for repairs recr.goods 1172011 Entertainment, sport, recreation, culture 1172023 1172024 1173011 1173012 Radio-, TV-licence and rental Photographic & other services nec. Books Newspapers,magazines etc.

1174011 Fees: vocat.training,adult educ. etc. 1174021 1174031 1174041 1181001 1181002 1181003 1181004 1182001 1182002 1182003 1182004 1182005 1182006 1182007 1182008 1182010 Compensation of employees Intermediate consumption Consumption of fixed capital Restaurants,take-a-ways & the like Pubs,bars,cafes and tearooms Staff canteens Hotels and other lodging places Services of hairdressers etc. Durable toilet articles and repair Non-durable toilet articles Jewellery,watches and their repair Travel goods and baggage items Other personal goods n.e.c. Writing,drawing equipment & supplies Social security and welfare services Charges for financial services nec.

cp0951 Books cp0952 Newspapers and periodicals cp0953/4 Miscellaneous printed matter; stationery, etc cp0942 Cultural services cp10 Education

cp1111 Restaurants, cafs and the like cp1112 Canteens cp112 Accommodation services cp1211 Hairdressing salons and personal grooming cp1212/3 Electrical appliances for personal care; etc cp1231 Jewellery, clocks and watches cp096 Package holidays cp1232 Other personal effects cp124 Social protection cp125 Insurance cp126 Financial services n.e.c. cp127 Other services n.e.c.

1182011 Fees for other services nec.

TABLE 2. PRICE INDEXES FOR THE EUROPEAN UNION (1995-2000) (UK96=1)

MST
B00 Dk00 Ge00 Sp00 Fr00 Ir00 It00 L00 N00 A00 P00 Fi00 Sw00 UK00 B99 Dk99 Ge99 Gr99 Sp99 Fr99 Ir99 It99 L99 N99 A99 P99 Fi99 Sw99 UK99 B98 Dk98 Ge98 Gr98 Sp98 Fr98 Ir98 It98 L98 N98 A98 P98 Fi98 Sw98 UK98 B97 Dk97 Ge97 Gr97 Sp97 Fr97 57.09 14.80 3.26 222.72 11.04 1.26 2825.08 64.13 3.18 23.87 242.41 10.96 17.16 1.05 55.78 14.44 3.20 416.78 215.48 10.85 1.20 2754.76 62.26 3.11 23.44 236.04 10.67 16.96 1.04 55.10 14.19 3.18 407.28 210.70 10.79 1.17 2710.41 61.60 3.05 23.32 231.28 10.53 16.87 1.03 54.65 14.05 3.16 389.83 207.24 10.72

TCST
55.81 14.73 3.24 221.59 10.99 1.25 2811.59 66.26 3.18 23.75 241.18 10.93 17.22 1.05 54.59 14.37 3.18 416.16 214.39 10.80 1.19 2741.61 64.05 3.11 23.32 234.84 10.63 17.02 1.04 54.00 14.13 3.16 407.12 209.78 10.74 1.16 2697.81 63.41 3.05 23.20 230.11 10.50 16.93 1.03 53.54 13.98 3.15 389.68 206.34 10.67

SCST
60.86 14.34 3.28 213.38 11.34 1.21 2752.37 62.86 3.18 24.11 240.03 10.84 17.38 1.08 59.73 14.08 3.22 381.50 209.43 11.13 1.19 2701.38 61.70 3.12 23.66 235.59 10.64 17.06 1.06 58.38 13.76 3.15 372.86 204.69 10.87 1.16 2640.20 60.30 3.05 23.13 230.25 10.40 16.67 1.04 54.33 13.63 3.10 382.39 202.52 10.67

EKS
56.67 14.55 3.20 219.86 10.90 1.22 2790.75 62.97 3.21 23.83 236.00 10.74 16.87 1.04 55.74 14.15 3.14 409.94 212.13 10.73 1.16 2718.74 61.14 3.15 23.36 231.69 10.44 16.59 1.04 55.04 13.90 3.12 399.82 207.31 10.66 1.14 2676.43 60.40 3.09 23.24 227.51 10.30 16.54 1.03 54.49 13.76 3.10 381.79 203.73 10.59

SCEKS
56.28 14.61 3.19 219.77 10.85 1.22 2784.47 62.59 3.20 23.85 234.50 10.73 16.93 1.04 55.60 14.10 3.13 409.30 211.43 10.70 1.16 2706.92 60.98 3.14 23.24 231.18 10.41 16.53 1.04 54.88 13.85 3.11 398.60 206.28 10.62 1.13 2662.62 60.16 3.08 23.13 226.63 10.25 16.46 1.03 56.09 14.14 3.19 393.14 209.59 10.91

GK
55.62 14.04 3.17 218.24 10.77 1.26 2789.21 60.84 3.22 23.60 234.79 10.54 16.08 1.04 54.81 13.65 3.11 385.82 208.79 10.64 1.19 2712.76 60.48 3.18 23.26 230.83 10.19 15.84 1.04 54.04 13.44 3.09 375.31 203.64 10.51 1.16 2682.13 59.83 3.12 23.16 225.93 10.05 15.84 1.03 53.60 13.30 3.07 360.27 200.31 10.45

SCGK
56.73 14.54 3.25 223.19 11.03 1.28 2863.11 61.40 3.31 24.37 238.61 10.76 16.70 1.08 55.91 13.80 3.19 360.40 207.50 10.91 1.19 2714.77 61.49 3.17 23.90 229.75 10.34 16.23 1.06 54.64 13.49 3.12 352.23 202.80 10.67 1.16 2653.29 60.10 3.10 23.36 224.54 10.11 15.87 1.04 54.49 13.46 3.11 365.10 203.21 10.60

TABLE 2. PRICE INDEXES FOR THE EUROPEAN UNION (1995-2000) (UK96=1)

Ir97 It97 L97 N97 A97 P97 Fi97 Sw97 UK97 B96 Dk96 Ge96 Gr96 Sp96 Fr96 Ir96 It96 L96 N96 A96 P96 Fi96 Sw96 UK96 B95 Ge95 Gr95 Sp95 Ir95 It95 N95 P95 Fi95 Sw95 1.15 2658.62 61.05 3.00 23.13 226.61 10.41 16.72 1.02 53.85 13.81 3.12 370.31 203.29 10.59 1.13 2609.11 60.22 2.95 22.87 222.47 10.29 16.49 1.00 52.90 3.08 343.05 196.24 1.10 2507.24 2.90 216.06 10.18 16.42 1.14 2646.27 62.84 3.00 23.03 225.46 10.37 16.78 1.02 52.75 13.75 3.10 370.17 202.73 10.54 1.13 2596.98 61.99 2.95 22.77 221.34 10.24 16.49 1.00 51.82 3.06 342.92 195.70 1.10 2495.59 2.91 214.96 10.13 16.35 1.14 2612.37 59.31 3.00 22.78 228.33 10.22 16.43 1.02 56.35 13.28 3.04 359.91 197.58 10.50 1.12 2548.53 58.21 2.94 22.32 222.26 10.03 16.09 1.00 53.32 3.00 334.69 190.87 1.09 2448.95 2.89 214.02 9.81 16.00 1.12 2625.42 59.81 3.03 23.05 222.47 10.16 16.40 1.02 53.68 13.52 3.05 362.15 199.75 10.47 1.11 2577.65 59.00 2.98 22.78 218.06 10.05 16.15 1.00 52.72 3.02 336.99 193.01 1.08 2479.07 2.94 212.19 9.94 16.06 1.15 2701.88 61.53 3.12 23.71 229.02 10.45 16.87 1.05 53.64 13.50 3.05 362.09 199.47 10.47 1.11 2576.71 58.88 2.98 22.75 217.91 10.03 16.13 1.00 52.94 3.03 340.10 194.38 1.09 2498.10 2.94 213.23 9.98 16.13 1.14 2630.49 59.35 3.06 22.95 220.96 9.91 15.72 1.02 52.80 13.08 3.02 341.23 196.51 10.32 1.12 2580.09 58.58 3.01 22.69 216.66 9.80 15.42 1.00 51.83 2.99 316.37 189.56 1.09 2479.07 2.96 210.45 9.67 15.34 1.16 2667.11 60.03 3.10 23.26 224.82 10.03 15.88 1.04 52.75 13.02 3.01 340.01 195.76 10.30 1.12 2561.17 58.01 2.99 22.55 216.75 9.76 15.31 1.00 53.93 3.14 337.73 200.05 1.16 2602.61 3.08 220.24 10.25 16.08

TABLE 3. SIMILARITY INDEXES (Lab)

MST TCST SCST EKS SCEKS GK SCGK MST 0.0000 0.0096 0.0249 0.0100 0.0156 0.0252 0.0346 TCST 0.0096 0.0000 0.0297 0.0151 0.0193 0.0279 0.0372 SCST 0.0249 0.0297 0.0000 0.0226 0.0266 0.0271 0.0306 EKS 0.0100 0.0151 0.0226 0.0000 0.0120 0.0199 0.0308 SCEKS 0.0156 0.0193 0.0266 0.0120 0.0000 0.0237 0.0320 GK 0.0252 0.0279 0.0271 0.0199 0.0237 0.0000 0.0216 SCGK 0.0346 0.0372 0.0306 0.0308 0.0320 0.0216 0.0000

TABLE 4. PRICE LEVELS Zkt FOR THE EUROPEAN UNION (1995-2000) (Gexx = 1)
Sw00 Dk00 Fi00 A00 UK00 Fr00 Ge00 Ir00 L00 It00 N00 B00 Sp00 P00 MST 1.2193 1.1921 1.1068 1.0410 1.0374 1.0103 1.0000 0.9593 0.9542 0.8757 0.8662 0.8493 0.8034 0.7257 MST 1.1877 1.1773 1.0974 1.0418 1.0119 1.0000 0.9702 0.9438 0.9297 0.8700 0.8639 0.8455 0.7919 0.7824 0.7199 Sw00 Dk00 Fi00 UK00 A00 Fr00 Ge00 L00 Ir00 It00 N00 B00 Sp00 P00 TCST 1.2292 1.1916 1.1083 1.0423 1.0406 1.0099 1.0000 0.9904 0.9589 0.8756 0.8701 0.8343 0.8030 0.7254 TCST 1.1871 1.1869 1.0988 1.0414 1.0115 1.0000 0.9755 0.9747 0.9293 0.8699 0.8679 0.8313 0.7916 0.7848 0.7196 Sw00 Dk00 Fi00 UK00 A00 Fr00 Ge00 L00 Ir00 B00 N00 It00 Sp00 P00 SCST 1.2254 1.1463 1.0855 1.0585 1.0434 1.0293 1.0000 0.9281 0.9172 0.8985 0.8591 0.8466 0.7638 0.7131 SCST 1.1747 1.1490 1.0855 1.0434 1.0293 1.0000 0.9770 0.9281 0.9172 0.8985 0.8591 0.8466 0.7638 0.7131 0.7106 Sw00 Dk00 Fi00 A00 UK00 Fr00 Ge00 L00 Ir00 N00 It00 B00 Sp00 P00 EKS 1.2213 1.1932 1.1045 1.0585 1.0501 1.0156 1.0000 0.9542 0.9495 0.8907 0.8810 0.8587 0.8078 0.7196 EKS 1.1857 1.1738 1.0941 1.0582 1.0194 1.0000 0.9852 0.9446 0.9210 0.8911 0.8751 0.8612 0.7946 0.7843 0.7203 Sw00 Dk00 Fi00 A00 UK00 Fr00 Ge00 L00 Ir00 N00 It00 B00 Sp00 P00 SCEKS 1.2301 1.2025 1.1075 1.0632 1.0547 1.0145 1.0000 0.9519 0.9498 0.8915 0.8823 0.8559 0.8103 0.7176 SCEKS 1.1852 1.1731 1.0942 1.0559 1.0192 1.0000 0.9850 0.9449 0.9203 0.8917 0.8739 0.8615 0.7943 0.7854 0.7208 Sw00 Dk00 Fi00 A00 UK00 Fr00 Ge00 Ir00 L00 N00 It00 B00 Sp00 P00 GK 1.1735 1.1609 1.0920 1.0567 1.0542 1.0122 1.0000 0.9833 0.9295 0.9005 0.8877 0.8497 0.8083 0.7217 GK 1.1546 1.1305 1.0778 1.0630 1.0201 1.0000 0.9951 0.9513 0.9430 0.9063 0.8811 0.8545 0.7892 0.7449 0.7241 Sw00 Dk00 Fi00 UK00 A00 Fr00 Ge00 Ir00 L00 N00 It00 B00 Sp00 P00 SCGK 1.1902 1.1744 1.0898 1.0674 1.0661 1.0126 1.0000 0.9773 0.9163 0.9033 0.8901 0.8466 0.8075 0.7165 SCGK 1.1385 1.1301 1.0670 1.0654 1.0206 1.0000 0.9875 0.9349 0.9273 0.8821 0.8600 0.8501 0.7649 0.7029 0.6786

Dk99 Sw99 Fi99 A99 Fr99 Ge99 UK99 L99 Ir99 It99 N99 B99 Sp99 Gr99 P99

Dk99 Sw99 Fi99 A99 Fr99 Ge99 L99 UK99 Ir99 It99 N99 B99 Sp99 Gr99 P99

Sw99 Dk99 Fi99 A99 Fr99 Ge99 UK99 L99 Ir99 B99 N99 It99 Sp99 P99 Gr99

Dk99 Sw99 Fi99 A99 Fr99 Ge99 UK99 L99 Ir99 N99 It99 B99 Sp99 Gr99 P99

Dk99 Sw99 Fi99 A99 Fr99 Ge99 UK99 L99 Ir99 N99 It99 B99 Sp99 Gr99 P99

Dk99 Sw99 Fi99 A99 Fr99 Ge99 UK99 Ir99 L99 N99 It99 B99 Sp99 Gr99 P99

Dk99 Sw99 Fi99 A99 Fr99 Ge99 UK99 L99 Ir99 N99 It99 B99 Sp99 P99 Gr99

TABLE 4. PRICE LEVELS Zkt FOR THE EUROPEAN UNION (1995-2000) (Gexx = 1)
Sw98 Dk98 Fi98 A98 Fr98 Ge98 UK98 L98 Ir98 It98 N98 B98 Sp98 Gr98 P98 MST 1.1739 1.1717 1.0904 1.0423 1.0120 1.0000 0.9459 0.9388 0.9230 0.8636 0.8515 0.8397 0.7802 0.7624 0.7104 MST 1.2009 1.1665 1.0999 1.0392 1.0074 1.0000 0.9546 0.9357 0.9137 0.8559 0.8426 0.8377 0.7828 0.7761 0.7087 Sw98 Dk98 Fi98 A98 Fr98 Ge98 L98 UK98 Ir98 It98 N98 B98 Sp98 Gr98 P98 TCST 1.1840 1.1723 1.0923 1.0423 1.0120 1.0000 0.9713 0.9507 0.9230 0.8640 0.8559 0.8272 0.7807 0.7660 0.7104 TCST 1.2112 1.1670 1.1004 1.0399 1.0074 1.0000 0.9680 0.9546 0.9184 0.8563 0.8475 0.8248 0.7865 0.7767 0.7087 Sw98 Dk98 Fi98 A98 Fr98 Ge98 UK98 L98 Ir98 B98 N98 It98 Sp98 P98 Gr98 SCST 1.1713 1.1471 1.0866 1.0436 1.0297 1.0000 0.9586 0.9280 0.9265 0.8984 0.8587 0.8495 0.7653 0.7142 0.7048 SCST 1.2047 1.1552 1.1025 1.0449 1.0233 1.0000 0.9714 0.9348 0.9281 0.8620 0.8586 0.8501 0.7839 0.7743 0.7291 Sw98 Dk98 Fi98 A98 Fr98 Ge98 UK98 L98 Ir98 N98 It98 B98 Sp98 Gr98 P98 EKS 1.1738 1.1703 1.0872 1.0595 1.0196 1.0000 0.9641 0.9390 0.9163 0.8777 0.8699 0.8556 0.7830 0.7634 0.7128 EKS 1.2019 1.1658 1.0953 1.0570 1.0159 1.0000 0.9526 0.9357 0.9319 0.8701 0.8628 0.8525 0.7825 0.7788 0.7102 Sw98 Dk98 Fi98 A98 Fr98 Ge98 UK98 L98 Ir98 N98 It98 B98 Sp98 Gr98 P98 SCEKS 1.1724 1.1710 1.0860 1.0581 1.0199 1.0000 0.9638 0.9387 0.9150 0.8780 0.8686 0.8563 0.7820 0.7639 0.7127 SCEKS 1.2016 1.1645 1.0949 1.0567 1.0164 1.0000 0.9530 0.9355 0.9322 0.8698 0.8628 0.8528 0.7831 0.7786 0.7105 Dk98 Sw98 Fi98 A98 Fr98 Ge98 UK98 Ir98 L98 N98 It98 B98 Sp98 Gr98 P98 GK 1.1424 1.1354 1.0713 1.0658 1.0151 1.0000 0.9765 0.9457 0.9390 0.8953 0.8801 0.8481 0.7765 0.7235 0.7147 GK 1.1630 1.1376 1.0785 1.0627 1.0118 1.0000 0.9767 0.9429 0.9374 0.8863 0.8727 0.8466 0.7730 0.7455 0.7121 Dk98 Sw98 Fi98 A98 Fr98 Ge98 UK98 Ir98 L98 N98 It98 B98 Sp98 P98 Gr98 SCGK 1.1366 1.1268 1.0681 1.0655 1.0209 1.0000 0.9689 0.9368 0.9348 0.8816 0.8629 0.8500 0.7664 0.7040 0.6730 SCGK 1.1616 1.1378 1.0792 1.0642 1.0138 1.0000 0.9821 0.9473 0.9370 0.8883 0.8745 0.8505 0.7751 0.7466 0.7161

Sw97 Dk97 Fi97 A97 Fr97 Ge97 Ir97 L97 UK97 It97 N97 B97 Gr97 Sp97 P97

Sw97 Dk97 Fi97 A97 Fr97 Ge97 L97 Ir97 UK97 It97 N97 B97 Gr97 Sp97 P97

Sw97 Dk97 Fi97 A97 Fr97 Ge97 Ir97 UK97 L97 N97 It97 B97 Gr97 Sp97 P97

Sw97 Dk97 Fi97 A97 Fr97 Ge97 Ir97 L97 UK97 N97 It97 B97 Gr97 Sp97 P97

Sw97 Dk97 Fi97 A97 Fr97 Ge97 Ir97 L97 UK97 N97 It97 B97 Gr97 Sp97 P97

Sw97 Dk97 Fi97 A97 Fr97 Ge97 Ir97 UK97 L97 N97 It97 B97 Sp97 Gr97 P97

Sw97 Dk97 Fi97 A97 Fr97 Ge97 Ir97 UK97 L97 N97 It97 B97 Sp97 Gr97 P97

TABLE 4. PRICE LEVELS Zkt FOR THE EUROPEAN UNION (1995-2000) (Gexx = 1)
Sw96 Dk96 Fi96 A96 Ge96 Fr96 L96 Ir96 N96 B96 It96 Sp96 UK96 Gr96 P96 MST 1.1880 1.1502 1.0821 1.0432 1.0000 1.0000 0.9395 0.8715 0.8440 0.8400 0.8168 0.7752 0.7543 0.7430 0.6967 MST 1.0849 1.0718 1.0000 0.8422 0.8354 0.8224 0.7327 0.7166 0.6894 0.6656 Sw96 Dk96 Fi96 A96 Ge96 Fr96 L96 Ir96 N96 B96 It96 Sp96 UK96 Gr96 P96 TCST 1.1935 1.1507 1.0826 1.0439 1.0000 1.0000 0.9719 0.8752 0.8486 0.8271 0.8171 0.7770 0.7581 0.7465 0.6967 TCST 1.0854 1.0722 1.0000 0.8469 0.8266 0.8225 0.7344 0.7169 0.6926 0.6656 Sw96 Dk96 Fi96 A96 Fr96 Ge96 L96 B96 Ir96 N96 It96 UK96 Sp96 Gr96 P96 SCTS 1.1874 1.1335 1.0810 1.0435 1.0155 1.0000 0.9303 0.9007 0.8895 0.8640 0.8174 0.7728 0.7720 0.7399 0.7131 SCST 1.0728 1.0706 1.0000 0.8635 0.8580 0.8374 0.7308 0.7177 0.6897 0.6761 Sw96 Dk96 Fi96 A96 Fr96 Ge96 L96 Ir96 N96 B96 It96 Sp96 UK96 Gr96 P96 EKS 1.1861 1.1488 1.0772 1.0599 1.0079 1.0000 0.9386 0.8723 0.8713 0.8541 0.8230 0.7769 0.7693 0.7411 0.6964 EKS 1.0806 1.0687 1.0000 0.8693 0.8489 0.8245 0.7348 0.7224 0.6905 0.6666 Sw96 Dk96 Fi96 A96 Fr96 Ge96 L96 Ir96 N96 B96 It96 Sp96 UK96 Gr96 P96 SCEKS 1.1855 1.1479 1.0763 1.0593 1.0087 1.0000 0.9374 0.8728 0.8715 0.8539 0.8232 0.7763 0.7698 0.7415 0.6964 SCEKS 1.0811 1.0693 1.0000 0.8662 0.8490 0.8239 0.7371 0.7251 0.6941 0.6671 Sw96 Dk96 A96 Fi96 Fr96 Ge96 L96 Ir96 N96 B96 It96 UK96 Sp96 Gr96 P96 GK 1.1441 1.1224 1.0665 1.0615 1.0041 1.0000 0.9414 0.8922 0.8871 0.8486 0.8320 0.7770 0.7719 0.7053 0.6989 GK 1.0627 1.0324 1.0000 0.8850 0.8441 0.8426 0.7306 0.7298 0.6686 0.6556 Sw96 Dk96 A96 Fi96 Fr96 Ge96 L96 Ir96 N96 B96 It96 UK96 Sp96 Gr96 P96 SCGK 1.1423 1.1232 1.0654 1.0626 1.0069 1.0000 0.9372 0.8993 0.8871 0.8521 0.8303 0.7812 0.7731 0.7065 0.7029 SCGK 1.0731 1.0300 1.0000 0.8775 0.8477 0.8361 0.7332 0.7302 0.6662 0.6661

Fi95 Sw95 Ge95 N95 B95 Ir95 Sp95 It95 Gr95 P95

Fi95 Sw95 Ge95 N95 Ir95 B95 Sp95 It95 Gr95 P95

Fi95 Sw95 Ge95 B95 N95 Ir95 Sp95 It95 Gr95 P95

Fi95 Sw95 Ge95 N95 B95 Ir95 Sp95 It95 Gr95 P95

Fi95 Sw95 Ge95 N95 B95 Ir95 Sp95 It95 Gr95 P95

Fi95 Sw95 Ge95 N95 B95 Ir95 It95 Sp95 P95 Gr95

Fi95 Sw95 Ge95 N95 Ir95 B95 Sp95 It95 Gr95 P95

TABLE 5. PRICE LEVEL SIMILARITY INDEXES (It)

Including Greece MST TCST 0.1485 0.1504 0.1524 0.1541 0.1544 0.1559 0.1673 0.1681 SCST 0.1587 0.1585 0.1497 0.1602 EKS 0.1465 0.1505 0.1522 0.1650 SCEKS 0.1461 0.1504 0.1520 0.1647 GK 0.1443 0.1498 0.1499 0.1615 SCGK 0.1617 0.1616 0.1487 0.1601

1999 1998 1997 1996

2000 1999 1998 1997 1996

Excluding Greece MST TCST 0.1480 0.1505 0.1449 0.1471 0.1475 0.1495 0.1523 0.1541 0.1523 0.1541

SCST 0.1532 0.1456 0.1442 0.1466 0.1466

EKS 0.1480 0.1424 0.1448 0.1492 0.1492

SCEKS 0.1505 0.1421 0.1447 0.1490 0.1490

GK 0.1395 0.1340 0.1374 0.1416 0.1416

SCGK 0.1447 0.1426 0.1412 0.1401 0.1401

TABLE 6. SIMILARITY OF RELATIVE PRICES G(Sjk)

2000 1999 1998 1997 1996 Including Greece N/A 0.3057 0.2997 0.2891 0.2873 Excluding Greece 0.3051 0.2956 0.2901 0.2796 0.2778