Purchasing power parities (PPPs) estimated on an annual basis are highly demanded by researchers in various fields, ranging from poverty and comparative living standards to competitiveness and military expenditures. However, the regular PPPs exercises are conducted every 5-6 years or even less frequently (12 years had passed between the 1993 and 2005 exercises). The amount of financial and human resources that goes into a benchmark PPPs exercise is very significant. Hence, PPPs for non-benchmark years are usually extrapolated using national accounts' deflators. This simplistic updating, however, results in outcomes that are not consistent with benchmark estimates, and the inconsistencies increase with distance from the benchmark.
This paper addresses this concern by discussing alternative methods and approaches for estimating PPPs for non-benchmark years in the Asia Pacific and Africa regions. In particular, the approach under consideration is based on treating the 2009 Update as an extension of the 2005 benchmark for the Asia Pacific and Africa regions with a minimum additional data collection in 2009 and using some inter-product and intra-country price correlations from the 2005 exercise.
The 2009 Update concentrates mostly on a core list of items for household consumption (and government consumption and gross fixed capital formation in construction for Asia Pacific only). The methodology to create a statistically efficient and reduced product list for the 2009 Update is discussed. In most economies, prices are being collected in capital cities only and adjusted to the national levels using price data from the Consumer Price Indices (CPI) or other information. The issue of intra-country differences in price levels (the capital city - average national price differentials) is one of the major points of the paper and is extensively discussed as well.
The results of the 2009 Updates in Asia Pacific and Africa are compared to the 2005 ICP Benchmark.
Keywords: Purchasing power parities; International comparison program; Index numbers
Biography: Yuri Dikhanov is a Senior Economist in the Development Data Group of the World Bank and a member of the International Comparison Program Global Office. His interests include international comparisons of prices and real incomes, index number theory with applications to spatial and temporal indexes and global income distribution, in particular, in real (PPP) terms.