[1][2] It is mainly used in economics and financial statistics for various purposes, most notably to determine and compare the purchasing power parity and gross domestic product of various countries and markets.
It is based on the twin concepts of purchasing power parities (PPP) of currencies and the international average prices of commodities.
The vector is obtained by averaging the national prices in the participating countries after their conversion into a common currency with PPP and weighing quantities.
PPPs are obtained by averaging the shares of national and international prices in the participating countries weighted by expenditure.
Geary-Khamis method solves this by using national prices after conversion into a common currency using the purchasing power parities (PPP).
PPPj is by Geary-Khamis system defined through this equation: The numerator of the equation represents the total value of output in j-th country expressed in national currency, and the denominator is the value of j-th country output evaluated by repricing at international prices Pi in international dollars.
Geary-Khamis international dollar is widely used by foreign investors and institutions such as IMF, FAO and World Bank.
It also offers some comparison of purchasing power parities all around the world (developing countries tend to have higher PPPs).
International dollar solves this by taking into account exchange rates, PPP and average commodity prices.
There is a high probability that these three methods will give three different answers, and, in fact, Brunt and Fidalgo (2018)[4] showed in their paper that "these three approaches do give three different answers when estimating output levels and growth rates in the US and UK – and they are not only different to one another, but also different to a comparison using the (more theoretically justifiable) chained GK prices."
Comparing GDP levels across countries using their own prices converted at the nominal exchange rate has no value whatsoever.
This approach is quite arbitrary because the exchange rate is determined simply by the supply and demand for currency and these metrics are greatly dependent on the volumes of trade balances.