Purchasing Power Parities of Currencies

‘Perhaps the most significant challenge economists face when comparing economic aggregates across countries is that the data needs to be expressed in a common currency. The use of Purchasing Power Parities (PPPs) to convert national GDP’s into a common currency, for example, is the recognized method to avoid the deficiencies in exchange rates. However, the methodology to produce PPPs is probably the most complex and difficult statistical activity in the world. The recently completed 2005 International Comparison Program (ICP) included 146 countries with huge variations in the size and structure of their economies and covered all components of the GDP. Because of the huge differences in the scope and scale of national economies, the ICP was organized to first produce regional PPPs followed by their linkage to produce global PPP’s. Many of the problems encountered are considered in this book. The list of authors reads like a who’s who in the field of international economic statistics who provide a valuable addition to the knowledge about PPPs. Purchasing Power Parities fits a critical need as it brings together the most recent significant developments to improve the estimation of internationally comparable economic indicators.’
– Frederic A. Vogel, Global Manager, International Comparison Program, 2005 and Consultant, World Bank, Washington, US

‘This book makes a major contribution to the literature on purchasing power parities (PPPs). It is the latest in a flow of important studies which started in 1940. The eminent contributors are mainly concerned with presenting new methods of estimation, rather than new estimates of world performance. Purchasing Power Parities of Currencies contains 13 essays. Most are concerned with complicated problems now at the cutting edge of PPP measurement, with innovative suggestions for sophisticated improvements of present techniques of estimating PPPs. When the World Bank PPP estimates for 2011 emerge, readers of the book will be well equipped to scrutinize its methodological approach with a critical eye.’
– Angus Maddison, United Nations University-MERIT, Maastricht and University of Groningen, Netherlands

Contributors: B. Aten, B. Balk, J. Cuthbert, E. Diewert, S. Dowrick, L. Dwyer, P. Forsyth, A. Heston, R. Hill, Y. Kurabayashi, D.S. Prasada Rao, D. Roberts, I. Sakuma, S. Sergeev, M. Timmer, B. van Ark, M. Ward

Contents:

Foreword

PART I: INTRODUCTION
1. Introduction
D.S. Prasada Rao

2. The Compilation of Purchasing Power Parities: The Eurostat–OECD Purchasing Power Parity Programme
David Roberts

PART II: SYSTEM METHODS FOR PPP COMPUTATION
3. Aggregation Methods in International Comparisons: An Evaluation
Bert Balk

4. Generalised Eltetö–Köves–Szulc and Country–Product–Dummy Methods for International Comparisons
D.S. Prasada Rao

5. True International Income Comparisons Correcting for Substitution Bias
Steve Dowrick

6. Additivity, Matrix Consistency and a New Method for International Comparisons of Real Income and Purchasing Power Parities
Itsuo Sakuma, D.S. Prasada Rao and Yoshimasa Kurabayashi

7. Implicit Data Structures and Properties of Selected Additive Indices
James Cuthbert

PART III: METHODS FOR SPATIAL LINKING AND ANALYSIS OF PRICE STRUCTURES
8. Similarity Indexes and Criteria for Spatial Linking
Erwin Diewert

9. Comparing Per Capita Income Levels Across Countries Using Spanning Trees: Robustness, Prior Restrictions, Hybrids and Hierarchies
Robert Hill

10. Chaining Methods for International Real Product and Purchasing Power Comparisons: Issues and Alternatives
Bettina Aten and Alan Heston

11. Aggregation Methods Based on Structural International Prices
Sergey Sergeev

PART IV: APPLICATIONS
12. Purchasing Power Parities and their Policy Relevance
Michael Ward

13. Purchasing Power Parity Adjustments for Productivity Level Comparisons
Bart van Ark and Marcel Timmer

14. PPPs and the Price Competitiveness of International Tourism Destinations
Larry Dwyer, Peter Forsyth and D.S. Prasada Rao

Index