Yuri Dikhanov ICP Global Office World Bank 1 Core Product List in International Comparisons: Experience from Asian 2009 Update

 1.New ICP benchmark – infrequent and expensive  2.Extrapolation to non-benchmark years using GDP deflators – easy but imprecise 2

 1.Different Index Numbers used (Fisher, Laspreyres, etc, fixed or chained) at the aggregate level, as well as at the elementary level, different base years of calculation.  2.Definition differences (eg., SNA93 vs. SNA68)  3.Quality adjustments (hedonics etc.)  4. Differences in capturing Terms-of-trade effect  5.Changes in ICP methodology [esp. outside OECD/EU area] 3

 OECD, ◦ Turkey - minus 13.6% ◦ Greece – plus 11.7% ◦ France – minus 6.4%  EU, ◦ Norway - minus 16.3% ◦ Iceland – plus 11.7%  ICP, ? 4

 Scope of an ICP benchmark: ◦ 145 countries ◦ products ◦ Quarterly price collection ◦ Multiple collection centers  Scope of the 2009 ICP update in Asia: ◦ Around 250 products ◦ Quarterly price collection ◦ Price collection in capital cities 5

 1.Core list of products that can be used in compiling quick updates of PPPs for the years in between benchmark years.  2.Scaling factors that can be used in scaling capital city prices to national average prices using the CPI information from the national sources and/or information from the price data collected as a part of the 2005 ICP.  3.CPI-ICP harmonization: [possible] integration of the core ICP list into regular price collection for CPI.  4.Sub-national PPPs (price levels) based on CPI/ICP information 6

 Principles:  1.Optimization at the BH level, in terms of minimizing deviation from the original CPD PPP  2.No countries dropped  3.At least 1/3 items is retained  4.Adjustment of BH core PPPs to compensate for core to full list differences  The number of k-combinations from a set of size n would be given by the following formula:  For a core list of six items out of 19 that would mean 27,132 combinations, etc. 7

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 Standard deviation of the BH PPP estimates depending on the number of items in the core list 9

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14 CONCLUSIONS: 1.Each country is required to price from 165 items [Bhutan] to 245 items [Malaysia and Indonesia]. Overall precision for Individual consumption is 1.6% [measured as the CV]. Again, those deviations are for unadjusted parities. Once adjusted for the coefficients from Table 1, they disappear. Those unadjusted deviations are only here to show what the overall results would be like if the only product list we had were the core product list, and we did not have our 2005 comparison to be the benchmark. Thus, the 2009 Update can be considered as an extension of the 2005 Benchmark. 2.First results will be computed by December 2009.