World Comparison Real Gross Domestic Product and Purchasing Power
Aggregates of basic headings:
Any aggregation of groups of basic headings, like Bread and cereals,
up to GDP Also termed summary or analytical categories.
Base-country invariance: The
index-number property that involves the symmetrical treatment of
all countries, with the result that the relative index-number standings
of the countries are not affected by the choice of the reference
Basic headings: The subdivisions
of final expenditure which correspond to the first aggregation of
price (or quantity) ratios for individual specifications or items.
Basic headings are sometimes referred to as detailed categories.
Binary comparison: A price or
quantity comparison between two countries that draws upon data for
only those two countries. Also called bilateral comparisons.
Bridge-country binary comparison:
A price or quantity comparison between a pair of countries derived
from the comparison of each country with a third country. For example,
given Ij/k and Ii/k, the bridge-country method of obtaining Ij/1
is to divide Ij/k by litk where I is a price or quantity index and
j, k, and I are countries. This is a common way of linking through
a country, as in the case of the Group II countries in Europe, where
Austria has served as the bridge country.
Characteristicity: The property
whereby the sample of prices or quantities and the weights used
in an international comparison conform closely to a representative
sample of items and to the weights of each of the countries included
in the comparison.
Circularity or transitivity:
The property of indices when the price or quantity relationship
among any two of three countries is the same, whether derived from
an original-country comparison between them or from the comparison
of each country with any third country. In the case of three countries,
where I is a price or quantity index and j, k and I are countries,
the circularity test is satisfied if Ij/k = Ij/i /Ik/i. When this
test is satisfied, there is a unique cardinal scaling of countries
with respect to relative quantities and prices.
Comparative price level: A comparative
price level is defined as the purchasing-power parity divided by
the exchange rate. (See Purchasing-power parity.) Expressed another
way, the comparative price level for a bundle of goods is its cost
in one country as a per cent of the cost of the same bundle in another
country, when prices in both countries are expressed in a common
currency, with the official exchange rate being used for currency
Consumption Expenditures of the
Population (CEP): The ICP concept of "consumption", which includes
both household expenditures and expenditures of government on such
categories as health and education.
Country-product-dummy (CPD) method:
A generalized bridge-country method in which regression analysis
is used to obtain transitive price comparisons for each basic heading.
The basic data for a given category consist of all the prices available
for the various specifications for the entire collection of countries.
The basic assumption is that within a given basic heading for a
given country, the price of an item depends in a multiplicative
way on a country factor and a price factor to be estimated from
the sample of item-country prices in each heading. It follows from
this that the logarithms of the prices are regressed against two
sets of dummy variables: one set contains a dummy for each specification;
the second set, a dummy for each country other than the numeraire
country. The transitive price comparisons are derived from the coefficients
of the country dummies.
Direct price or quantity comparison:
Made by comparing for two or more countries the prices or quantities
for a representative sample of equivalent commodities.
ECP: European Comparison Programme,
the set of ICP comparisons for Europe carried out under the auspices
of the Economic Commission for Europe. In the 1985 comparison the
ECP was built on the EEC and part of the OECD comparisons and a
group of Eastern European countries for which Austria served as
the centre for a set of binary comparisons (referred to as "Group
EKS method: A multilateral method
developed by Elteto, Koves and Szulc that computes the nth root
of the product of all possible Fisher indices between n countries.
It has been used at the detailed heading level to obtain heading
parities, and also at the GDP level as a method of aggregation.
EKS has the properties of base-country invariance and transitivity.
Fixity: The practice of fixing
the results of an ICP aggregation for a country group when the country
group is compared with a larger group. For example, the relation
of France and Italy as given by Geary-Khamis or EKS for the 12 EEC
countries would be fixed so that within the OECD, the France-Italy
relationship would be preserved.
Geary-Khamis (G-K) method: An
aggregation method in which category "international prices" (reflecting
relative category values) and country PPPs (depicting relative country
price levels) are estimated simultaneously from a system of linear
equations. Has the properties of base-country invariance, matrix
consistency and transitivity.
Government Final Consumption Expenditure
(GFCE): The SNA concept of "government", which includes public expenditures
on education, health and similar categories. The ICP uses a different
approach; see Public Final Consumption Expenditure.
Gross capital formation (GCF):
The ICP concept of gross capital formation includes fixed capital
formation, change in stocks, and net exports. Definitions of these
three components correspond to SNA concepts, although the SNA does
not include net exports in its definition of the GCF.
Indirect price or quantity comparison:
A comparison made by dividing the price or quantity ratio into the
expenditure ratio. That is, the indirect quantity comparison between
country j and country k for commodity i, qij/qik,
is obtained from (pijqij/Pikqik)/
(Pij/Pik) = qij/qik,
where the ps are the commodity prices.
International price (ni): The
international price of basic heading i, is defined as a quantity-weighted
average of the purchasing-power-adjusted parities at the basic heading
level across the n countries.
Multilateral comparison: A price
or quantity comparison of more than two countries simultaneously
produces consistent relations among
all pairs; that A, one that satisfies the circular test or the transitivity
Nominal expenditures: Expenditures
in national currencies converted to a common currency at exchange
Numeraire: Usually the currency
unit of one country is chosen as numeraire for expressing real expenditures
and PPPs. The CPD, EKS and Geary-Khamis procedures are all invariant
as to which country is the numeraire or base. The numeraire may
also be the average of a group, as has been the case in the EEC
and the African comparisons.
PPP: See Purchasing-power parity.
Private Final Consumption Expenditure
(PFCE): The SNA concept of "consumption", which excludes public
expenditures on education, health and similar categories. The ICP
uses a different approach; see Consumption Expenditure of the Population.
Public Final Consumption Expenditure
(PFC): The ICP concept of "government", which excludes public
expenditures for education, health and similar categories.
Purchasing-power parity (PPP):
The number of currency units required to buy goods equivalent to
what can be bought with one unit of the currency of the base country
or with one unit of the common currency of a group of countries.
Also referred to as Purchasing Power Standard. The PPP may be calculated
over all of GDP, but also at levels of aggregation, like capital
Real product or real quantity:
The final product or quantity in two or more countries that is valued
at common prices and, therefore, valued in comparable terms internationally.
Region alization: The practice
of building up world ICP comparisons on the basis of comparisons
carried out in various country groupings like the EEC or ESCAP.
Representativeness: A term used
to describe how characteristic a particular item is of the types
of goods and services included in a basic heading.
Specification: A description
of an item for which a price comparison is to be made. The description
is designed to ensure that goods of equivalent quality are compared.
The terms "item" and "specification" are used interchangeably.
Transitivity requirements: See
Circularity or transitivity.