1. Item 21: Purchasing Power Parities
ESTP course on National Accounts ESA 2010
Luxembourg, May Eurostat

2. What are PPPs?
Indicators of price level differences across countries: they tell us how many currency units a given quantity of goods and services costs in different countries.
Currency converters: PPPs are used to convert values (e.g. GDP) into a common currency that neutralises prices differences, thereby enabling a pure volume comparison

3. What are PPPs used for?
Economic analysis, research, involving inter-country comparisons
Statistical compilation (e.g. to provide country weights)
Administrative uses:
EU: eligibility of regions to structural funds
EU: correction coefficients for EU staff
IMF: quota

4. Why use PPPs instead of exchange rates?
Exchange rates are influenced by many factors and do not reflect the relative purchasing powers of currencies in their national markets

5. Example: GDP per capita

6. Example: impact of XR

7. What is the Purchasing Power Standard (PPS)?
Artificial currency unit: one PPS can buy the same amount of goods and services in each country
GDP in PPS = GDP in national currency/PPP
PPPs can be interpreted as the exchange rate of the PPS against the national currency
PPPs are scaled so that GDP of EU28 in euro equals GDP of EU28 in PPS

8. PPPs are based on price surveys on
consumer products
housing rents
machinery and equipment
construction
health
government
education

9. Example: consumer products
Prices of about 2400 precisely defined products are collected in a rolling survey cycle covering three years Challenge: Comparability Representativity

10. Other data needed
Detailed breakdown of GDP expenditures from national accounts for weighting
HICP to extrapolate consumer prices from survey periods to non-survey periods
Eurostat calculates and disseminates PPPs

11. International co-operation
Eurostat produces annual PPPs for 37 European countries
Close co-operation with OECD that use approx. same methodology for producing PPPs for 12 non-European OECD countries ("Eurostat-OECD PPP program")

12. International co-operation (2)
Eurostat-OECD data flow into International Comparison Programme (ICP) run by World Bank – 2011 benchmark results were published end April 2014 – nearly 200 countries covered
Next benchmark 2017
After that benchmarks every three years

13. Main outputs
Headline indicator: volume index of GDP per capita in PPS (but increased focus on Actual Individual Consumption)
Other main indicators: price level indices + price convergence

14. GDP and AIC per capita in PPS, 2015

15. Price convergence

16. Availability of PPP data
T+6 First estimate T
T+12 Preliminary estimates T
T+24 Semi-final estimates T
T+36 Final estimates T

17. How not to use PPPs

18. How not to use PPPs

19. Better: same indicator indexed to EU=100

20. Better: same indicator indexed to EU=100
Careful with interpretation:
BE economy did not shrink
This is not a constant price series

21. Comparing PPP and NA volume data
Demonstrates the most common question from users: why do PPP data deviate from NA?

22. More info: Eurostat-OECD Methodological Manual on Purchasing Power Parities