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

2. 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

3. 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

4. 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

5. 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

6. 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)

7. 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

8. 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

9. Example: Price Level vs GDP p.c.

10. 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 International Comparison Program
Operational Guidelines and Procedures for Measuring the Real Size of the World Economy: 2011 International Comparison Program
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