Global Purchasing Power Parities and Real Expenditures - Afristat

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Appendix HEstimation of Between-RegionLinking FactorsLinking Regions: A Step-by-StepNumerical ExampleA very important feature of the 2005 ICP was that PPPswere first computed separately for each region and theEurostat-OECD using methodology most suited to itseconomic situation and capabilities. The need to calibratethe regional PPPs to a common world currency led to thedevelopment of the ring methodology that was used to linkthe regions. The following paragraphs provide an exampleshowing the steps taken using ring prices to calibrate theregional PPPs to a common currency. The example showshow the ring prices for each region are converted to a commonregional currency using regional PPPs from whichregional PPPs are computed.Steps 1 and 2. This table shows ring prices for a basicheading with 10 products for the ring countries in regionsI, II, and III. The ring prices for each country are in itsnational currency. The bottom line of the table shows thewithin-region basic-heading PPP for each country relativeto the base country. (Note that countries A and E are thenumeraire countries in regions I and II, respectively.)Step 3. The ring prices for each country are divided byits regional PPP. This converts the ring prices in nationalcurrencies to the currency of the numeraire country for theregion. Note that the prices for the numeraire countriesremain the same.Step 4. This table shows the results of the CPD regressionon the three sets of prices shown in step 3. Region Iwas the numeraire for the CPD regression. For this basicheading, the PPP of region II to region I is 10.56.Step 5. This shows the linking factors by country byregion. Note that the linking factor for region I is 1.0. Thelinking factor for this basic heading in region II is 10.56.This is used for all countries in the region, not just the ringcountries.Step 6. The global PPP for each country is its withinregionPPP times the regional PPP or linking factor.An important feature is that the calibration of theregional PPPs to the global level is essentially a scalar adjustment.This preserves the relative relationships of the countrieswithin region; thus it meets the fixity requirement.195
196 Global Purchasing Power Parities and Real ExpendituresFigure H1 Linking Factors: Numerical Example123RingPrices—BH Region I Region II Region IIIProduct A B C D E F G H1 2 100 25 20 600 etc.2 5 12 900 4503 6 270 15 1,000 4004 320 70 180 5,0005 8 280 120 120 2,000 5006 210 60 100 3507 50 1408 120 12 100 80 8009 2 10 25 1,500 15010 40 260PPPs(within region)1 30 5 13 1 30 6DeflatedpricesRegion I Region II Region IIIProduct A B C D E F G H1 2 100 25 20 600 etc.2 5 12 900 4503 6 270 15 1,000 4004 320 70 180 5,0005 8 280 120 120 2,000 5006 210 60 100 3507 50 1408 120 12 100 80 8009 2 10 25 1,500 15010 40 2605CountryRegionPPPs(within region)Base country for region Ifor the ICP: United StatesRegional coefficients (PPPs)Method I II IIICPD 1 10.56 etc.5 6LinkingFactorsGlobalPPPA I 1 1 1B I 30 1 30C I 5 1 5D I 13 1 13E II 1 10.56 10.56F II 30 10.56 316.80G II 6 10.56 63.36H III etc. etc. etc.Base region forthe ICP: OECDSource: 2005 ICP.
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Global Purchasing PowerParities and
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© 2008 by the International Bank f
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viContentsPart II: Technical Notes
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Acronyms and AbbreviationsADBAfDBBO
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PrefaceThis publication presents th
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AcknowledgmentsThe ICP shares a com
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Part IPurchasing Power Paritiesand
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Global Purchasing Power Parities an
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Global Purchasing Power Parities an
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2005 ICP:Results and Major Findings
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2005 ICP: Results and Major Finding
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Tables of Results21
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Part IITechnical Notes of the 2005
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Page 162 and 163: Comparison-Resistant AreasSome comp
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Page 166 and 167: Data ValidationData validation was
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Page 220 and 221: Glossary 205in nonmarket production
Page 222 and 223: Glossary 207Multilateral comparison
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Global Purchasing Power Parities and Real Expenditures - Afristat

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