Irwin L. Collier

THE MEASUREMENT AND INTERPRETATION OF REAL CONSUMPTION AND PURCHASING POWER PARITY FOR A QUANTITY CONSTRAINED ECONOMY: THE CASE OF EAST AND WEST GERMANY

When households are subject to quantity constraints, conventional measures of real consumption and purchasing power parity for cross-national comparisons suffer from a new type of index number problem. Additional information on preferences, taken from a demand system estimated for a similar economy without quantity constraints, can be employed to calculate distance function and money-metric indexes of relative real consumption and corresponding measures of purchasing power parity. The procedure is illustrated in a comparison of East and West German consumer prices and consumption expenditures for 1977. Copyright 1989 by The London School of Economics and Political Science.