Transcript Document

The Ring Comparison
ADB workshop
26–29 June 2006
Paul McCarthy, Prices Branch ABS
To get a world-wide comparison
• The ICP has been carried out on a regional
basis with 6 separate regions involved
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Asia/Pacific
OECD/Eurostat
West Asia
Africa
CIS
Latin America
• Need to combine the regional outputs into a
world-wide comparison
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World-wide comparisons
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Linking regions
• The previous ICP used a single “bridge
country” approach
• Linking regions through a single country is
risky
– any errors in the link country will affect the
whole region’s comparability with the rest of the
world
• Linking through several countries is safer
– how are any inconsistencies handled?
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Linking regions (continued)
• A new methodology has been developed to
link regions in the 2005 ICP
– the “Ring country” comparison
• Selected countries from each region collect
prices using a product list reflecting the
world as a whole
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Bilateral comparison
• Links based on a comparison between pairs of
countries
– could use one pair of countries between regions or
several pairs of countries from each pair of regions
• Products matched between each pair of
countries
• Need to identify the countries most likely to
provide a broad range of product matches
– a special product list would be set up to fill the
gaps that are left after initial product matching
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“Chain link”
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All regions link to one region
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Mixed approach
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“Tight” bilateral link
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Bridge versus core
• Bridge countries
– countries which participate in 2 regional
comparisons to provide a link between them
• method used in previous ICPs
• Core countries
– countries that participate in a separate comparison
(either bilateral or multilateral) organised
specifically to provide a link between regions
• the ring comparison is an example
• Either approach can be used for either
multilateral or bilateral comparisons
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Pros of a single bridge country
• The linking procedure is straightforward
• Calculating the final PPPs between countries
in different regions is fairly simple
• This procedure has been used many times in
the past and so there are quite a number of
PPP compilers who are very familiar with it
• Overall setup costs are low
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Pros of a single bridge country (cont)
• Costs incurred by the bridge country are
relatively low because there is not a lot of
work associated with developing the list of
products to be priced
• Regional products can be matched by the
country through SPDs but it is not essential
to do so
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Cons of a single bridge country
• The quality of the link between all countries
in any pair of regions directly linked is
completely dependent on a single country
• The market conditions and structures of the
bridge country completely (largely?) define
the link
• If a bridge country fails to deliver for some
reason, no overall world-wide ICP comparison
is possible
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Cons of a single bridge country
(continued)
• If regions are successively linked together
in a chain then a problem arising in the
process of linking between a pair of the
middle regions affects the comparison
between all the regions on either side of
this link
• The method has been criticised for its
shortcomings in assessments of past rounds
of the ICP
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“Chain link”
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Pros of a tight bilateral
• Product list can be targeted to both countries
involved
• Sounder results than for either the simple or
multiple bridge country approach
– product lists can be specifically targeted so the results
are probably better than those from the ring
• Linking procedure relatively straightforward for
the simpler versions
– however, if more than a single pair of countries prices
the products then need to work out how to weight
together the results for all the countries involved
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Cons of a tight bilateral
• Higher costs than those for either the simple
or multiple bridge country approach (for any
similar number of link countries involved)
– a separate set of product lists has to be
developed for each pair of countries
• Need to find pairs of “similar” countries
between diverse regions to set up a
comparison other than a simple chain
– ideal pairs are known only after the comparison is
completed
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Cons of a tight bilateral (continued)
• Time taken to set up the product lists could
be fairly lengthy, particularly if a country
pair turns out not to be able to match
products as well as had been envisaged when
initially selecting them
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Multilateral comparisons
• The “Ring comparison” is a multilateral
approach
• The results should be better
– not subject to the vagaries of a single country
providing the link between any pair of countries
• In practice, more complicated than previous
procedures
– dependent on a good range of “out of region”
products being priced by all ring countries
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Multiple bridge countries
• Using multiple bridge countries for a pair of
regions is a variation on the method used in
previous ICPs
• Reduces the effects of a bridge country
coming up with poor results or a complete
failure on the part of one country
• Aim would be to use an average of the
results of all the bridge countries between
each pair of regions
– if the results from one country were unusable
then they could be discarded but a robust link
could still be made via the remaining countries
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Pros of multiple bridge countries
• Despite setup costs being higher than for a
single bridge country, they are still
relatively low
• The costs for each bridge country are low
because there is not a lot of work to develop
the product list
• Linking procedure is fairly straightforward
– main issue is how to weight together the results
for all the bridge countries involved between
each pair of regions to enable a single link factor
to be calculated for each pair of regions
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Pros of multiple bridge countries (cont)
• The quality of the link is not dependent on a
single country between a pair of regions
• Calculating the final PPPs between countries
in different regions is fairly simple
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“Ring link”
Asia/Pacific
OECD/
Eurostat
Africa
Latin
America
West Asia
CIS
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Multilateral link
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Ring link
Asia/Pacific
OECD/
Eurostat
Africa
Latin
America
West Asia
CIS
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What is the ring comparison?
• The ring comparison is a multilateral
approach used to link regional PPPs to
produce world-wide PPPs
– this approach requires a selected number
of countries from each region to
participate in a separate comparison
• The ‘ring countries’ will price a common
global ring product list in addition to
their individual regional lists
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Criteria for a ring country
• Each participates fully in its own region
– implies reasonably good expenditure-based
accounts and prices statistics
• Willing to act as a ring country
• Have developed markets and an open economy
• Has a price structure that is not distorted by
high tariffs or high subsidies
• Products to be priced should not be affected
by a “prestige goods effect”
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Criteria for a ring country (continued)
• Able to derive national annual average prices
• Have a wide range of goods and services
likely to be found in other regions
• Have time series price indexes to enable
reported prices to be “standardised in time”
• Have good data for expenditure weights
• Can participate in the full GDP comparison
• Able to conduct the rental survey
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The ring countries
Africa
Egypt, Kenya, Senegal, South
Africa, Cameroon
Asia
Hong Kong, Sri Lanka,
Malaysia, Philippines
CIS
Russia, Kazakhstan
Eurostat/OECD
UK, Japan, Estonia, Slovenia
West Asia
Oman, Jordan
Latin America
Brazil, Chile
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General issues
• Assume linking will be carried out at the BH
level
• The PPPs have to be established at the
individual product level within each BH and
then averaged to obtain the BH PPP
– applies for either a core or bridge approach
– applies for either a bilateral or multilateral
comparison
• Importance of data consistency
– within region, and regional to ring lists
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Steps for producing ring PPPs
• Prepare regional multilateral PPPs for all
countries in each region
• Collect prices for ring countries
– the “ring list”
• Divide ring prices by each country’s regional
PPP
• Compute ring PPPs across 6 regions
• Ring PPP x regional PPP = global PPP
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Fixity
• The relative position of countries can change
as the composition of the group of countries
being compared changes
• Fixity becomes an issue when there are two
groups of countries, one smaller than the
other, with the smaller group being a sub-group
of the larger group
• There are 2 sets of PPPs for the smaller group
– the first set is that calculated for the group on its
own, while the second set is that calculated for the
group as a sub-group of the larger group
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Fixity (continued)
• Fixity requires that the first set replaces
the second set in the broader comparison
• In practice, fixity is obtained by taking the
PPPs calculated for a specific sub-group of
countries, substituting them for the PPPs
calculated for the sub-group in a comparison
covering a larger group of countries, and
linking the substitute PPPs with the PPPs for
the other countries included in the
comparison
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Fixity (continued)
• The procedure preserves the relationships
between the countries in the sub-group
– it also preserves the relationship between the
other countries and the sub-group as a whole.
• Fixity enables regions to finalise their
results prior to the ring comparison being
run
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