A Restricted-Domain Multilateral Test Approach to the Theory of International Comparisons(revised and extended version of CEP 96-03)

This paper develops a novel multilateral test approach to the problem of international comparisons. Many of the associated tests are justi¯ed as\reasonable" using the fact that they are direct analogues to properties of the cost-of-living index. Further support is bestowed upon the new approach by showing that it is equivalent to an extended version of Diewert's (1986) multilateral test approach. Finally, a number of alternative multilateral comparison formulae are evaluated and the relative superiority of two of them is established.