The foundation of the PPPs coming from the International Comparison Program (ICP) is that they are based on prices for a basket of goods and services that are comparable across countries. In addition to the comparability requirement, the goal is that the basket to be priced includes products representative of individual countries. The tension between comparability and representativity is reviewed by examining the interaction of several factors that affect the reliability of Purchasing Power Parities (PPPs). The first is the specificity of the price-determining characteristics and how that relates to the number of products to be priced. Both depend on the heterogeneity of the product groups, and the amount of overlap of the products across countries. All of these factors have to be considered in the sample design to determine the number and types of outlets to be included in the price collection. A final requirement is that national annual average prices be provided for each product or service.
The paper illustrates the sources of variability inherent in the estimation of PPPs and presents how the understanding of those sources can be used to define the products to be priced, classify them according to their importance, set targets for the number each country should price, and define the scope and coverage of the data collection by outlet types and the rural/urban domains in order to provide national annual average prices.
Keywords: International Comparison Program (ICP); Purchasing Power Parity (PPP); Basic heading; Survey Framework
Biography: Consultant, International Statistics, the World Bank. Global Manager of the ICP 2002-2008.