Yuri Dikhanov ICP Global Office World Bank

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Elizabeth Cain
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1 Yuri Dikhanov ICP Global Office World Bank 1 losure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized

2 1. New ICP benchmark infrequent and expensive 2. Extrapolation to non-benchmark years using GDP deflators easy but imprecise 2

3 1. Different Index Numbers used (Fisher, Laspreyres, etc, fixed or chained) at the aggregate level, as well as at the elementary level, different base years of calculation. 2. Definition differences (eg., SNA93 vs. SNA68) 3. Quality adjustments (hedonics etc.) 4. Differences in capturing Terms-of-trade effect 5. Changes in ICP methodology [esp. outside OECD/EU area] 3

OECD, 1990-1999. Turkey -minus 13.6% Greece plus 11.7% France minus 6.

4 OECD, Turkey -minus 13.6% Greece plus 11.7% France minus 6.4% EU, Norway -minus 16.3% Iceland plus 11.7% ICP, ? 4

5 Scope of an ICP benchmark: 145 countries products Quarterly price collection Multiple collection centers Scope of the 2009 ICP update in Asia: Around 250 products Quarterly price collection Price collection in capital cities 5

6 1. Core list of products that can be used in compiling quick updates of PPPs for the years in between benchmark years. 2. Scaling factors that can be used in scaling capital city prices to national average prices using the CPI information from the national sources and/or information from the price data collected as a part of the 2005 ICP. 3. CPI-ICP harmonization: [possible] integration of the core ICP list into regular price collection for CPI. 4. Sub-national PPPs (price levels) based on CPI/ICP information 6

7 Principles: 1. Optimization at the BH level, in terms of minimizing deviation from the original CPD PPP 2. No countries dropped 3. At least 1/3 items is retained 4. Adjustment of BH core PPPs to compensate for core to full list differences The number of k-combinations from a set of size n would be given by the following formula: For a core list of six items out of 19 that would mean 27,132 combinations, etc. 7

8 lnp cp = y cp = x cp β+ ε cp (1) where p - price of product p in country c; cp Dc and j Dp - country and product dummies; i Np and Nc number of products and countries, respectively; xcp = Dc2... DccDpDp Dpp (2) T β = α... α γ γ... γ 2 c 1 2 p 8

9 StandarddeviationoftheBHPPPestimatesdependingonthenumberofitemsinthecorelist 12% 10% 8% 6% 4% 2% 0%

10 Table 1. Average price in local currency Item name CV of CPD N. of BAN BHU BRU PRC FIJ HKG INO IND IRN CAM LAO SRI MAC MLD MON MAL NEP PAK PHI SIN THA TAP VIE residuals by countries item pricing item 1.Coarse # White rice # White rice # White rice # White rice # White rice # White rice $ White rice # White rice # Premium rice # Premium rice # Premium rice # Premium rice # Coarse # Coarse # Coarse # Brown rice White rice # White rice # CV of CPD residuals by country N. of items priced by country

11 Item name N. of countries pricing item Table 2. Quotes to be collected BAN BHU BRU PRC FIJ HKG INO IND IRN CAM LAO SRI MAC MLD MON MAL NEP PAK PHI SIN THA TAP VIE 1.Coarse #3 3 2.White rice # White rice #4 4 4.White rice #5 6 5.White rice #6 4 6.White rice #7 3 7.White rice $8 5 8.White rice #9 4 9.White rice # Premium rice #1 10 x x x x x x x x x x 11.Premium rice # Premium rice #3 4 x x x x 13.Premium rice #4 13 x x x x x x x x x x x x x 14.Coarse # Coarse # Coarse # Brown rice 5 x x x x x 18.White rice #1 9 x x x x x x x x x 19.White rice #2 7 x x x x x x x TOTAL QUOTES: 48 DEVIATION: 8.1% 11

12 Item name CV of CPD residuals by item N. of countries pricing item BAN BHU BRU PRC FIJ HKG INO IND Table 3. Diagnostic table of CPD residuals IRN Coarse #3 White rice #3 White rice #4 White rice #5 White rice #6 White rice #7 White rice $8 White rice #9 White rice #10 Premium rice # Premium rice #2 Premium rice # Premium rice # Coarse #2 Coarse #6 Coarse #5 Brown rice White rice # White rice # CV of CPD residuals by country BH CV CAM LAO SRI MAC MLD MON MAL NEP PAK PHI SIN THA TAP VIE 12

13 Average prices BAN BHU BRU PRC FIJ HKG INO IND IRN CAM LAO SRI MAC MLD MON MAL NEP PAK PHI SIN THA TAP VIE Coarse # White rice # White rice # White rice # White rice # White rice # White rice $ White rice # White rice # Premium rice # Premium rice # Premium rice # Premium rice # Coarse # Coarse # Coarse # Brown rice White rice # White rice # adjustment : 12: 13: 17: 18: 19:

14 CONCLUSIONS: 1. Each country is required to price from 165 items [Bhutan] to 245 items [Malaysia and Indonesia]. Overall precision for Individual consumption is 1.6% [measured as the CV]. Again, those deviations are for unadjusted parities. Once adjusted for the coefficients from Table 1, they disappear. Those unadjusted deviations are only here to show what the overall results would be like if the only product list we had were the core product list, and we did not have our 2005 comparison to be the benchmark. Thus, the 2009 Update can be considered as an extension of the 2005 Benchmark. 2. First results will be computed by December

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