Yun (2005) suggested an averaging method to resolve the identification problem in detailed decompositions. Since then, detailed decomposition techniques have been widely discussed. This paper shows that the averaging method may not answer the identification problem. The method is built on unrealistic distributional constraints on a set of dummy variables and is sensitive to both the number of groups and the method of grouping. As an alternative, a weighted averaging method is suggested that is in line with Haisken-DeNew and Schmidt’s (1997) two-step renormalization. This method gives a distinct meaning to the intercept term and makes detailed decomposition feasible using a reasonable assumption. However, this paper underscores that there are multiple solutions to the identification problem, and that other detailed decomposition methods may be acceptable depending on theoretical or practical considerations.
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