Quality Assurance Procedures for Estimating Purchasing Power Parities 39th Session Marko RISSANEN, Statistician, The World Bank Group, Washington, DC, USA; mrissanen@worldbank.org Nada HAMADEH, Senior Statistician, The World Bank Group, Washington, DC, USA; nhamadeh@worldbank.org

Introduction: PPPs and ICP What are PPPs Purchasing power parities are conversion rates that convert to common currency while equalizing the purchasing power of different currencies Why use PPPs Accurate volume measures of economic activity, as well as comparisons of standards of living across countries, require conversion rates that take into account price levels What is ICP The International Comparison Program (ICP) is a worldwide statistical initiative designed to estimate PPPs; partnership of +200 countries, regional and global organizations

PPP Estimation Process Country Level National implementing agencies (NIAs) collect prices and related data for items (regional/global) covering a whole range of final goods and services (GDP) Regional Level Regional implementing agencies (RIAs) use national prices to estimate regional PPPs: - At basic heading level (CPD: prices + missing prices) - Above the basic headings (GEKS: PPPs + exp. weights) Global ICP Unit (GIU) uses regional data to estimate global PPPs: - Global prices are used to calculate linking factors (CPD) - Regional PPPs are linked using the linking factors - Global PPPs are aggregated (GEKS) - Global PPPs are adjusted for fixity (CAR) Global Level

Overview of Quality Assurance By NIAs To ensure data quality within the country Intra-Country Validation By NIAs and RIAs To ensure data quality and plausibility of the results within the region Inter-Country Validation By RIAs and GIU To ensure data quality and plausibility of the results across the regions Global Validation Validation Stages Generation of validation measures Iterative Process Correction Review

Intra-Country Validation Initial Validation Review of merged datasets; item codes; observed quantities and units of measurement; sub-national price variations; temporal price variations Review of average price measures: coefficients of variation; max/min ratios Review of individual price observation measures: standard deviations; t-values Statistical Tests Data Finalization Preparation of average prices; number of observations; coefficients of variation

Inter-Country Validation Initial Validation Review for extreme data errors Validation at BH level Comparison of averages prices and related measures across the countries (main phase of the validation stage) Validation above BHs Comparison of averages prices and related measures across the countries above a single basic heading (BH) Temporal Validation Comparison of PPP and price level indices across time Data Finalization Preparation of final regional results and data for submission (after iterative rounds)

Example: Quaranta Table Milk, fresh, unskimmed, well known brand CV 19.2 CTR LCU price #Obs CV XR-Price XR-Index PPP-Price PPP-Index   GM 1.19 AR 14.08 132 17 0.98 82 0.89 75 BD 62.31 86 3 0.80 67 1.09 91 BR 2.93 726 20 0.75 63 CO 2,726.92 162 18 0.81 68 1.06 89 GH 10.18 35 11 2.58 216 1.31 110 ID 20,206.00 294 24 1.49 125 1.23 103 KE 122.67 31 1.21 102 KH 7,960.09 6 5 1.98 166 1.60 134 MW 666.69 30 27 0.91 76 101 NG 466.70 279 28 2.35 197 1.47 123 PE 3.63 80 1.04 87 0.95 79 PH 79.63 179 1.67 140 1.34 112 VE 276.88 165 26 0.69 58 0.99 83 VN 35,019.00 276 21 1.57 1.69 142 ZA 12.75 88 0.79 1.11 93

Global Validation Regional Quality Global Price Quality Review of regional quality thresholds Global Price Quality Review of representativity of global prices among regional prices; quality of global prices across the countries; variability of the inter-regional linking factors Quality of Global PPPs Degree of similarity of aggregated bilateral PPPs (Paasche-Laspeyres spreads) Plausibility of Global Result Historical results; Penn-effect; Balassa–Samuelson effect

Example: Price Level vs GDP p.c.

Thank You Additional Resources Follow Us Online Measuring the Real Size of the World Economy: The Framework, Methodology, and Results of the International Comparison Program Purchasing Power Parities and the Real Size of World Economies: A Comprehensive Report of the 2011 International Comparison Program Operational Guidelines and Procedures for Measuring the Real Size of the World Economy: 2011 International Comparison Program Follow Us Online http://siteresources.worldbank.org/ICPEXT/Resources/I CP_2011.html