Consistency and Extrapolation of ICP Benchmarks: The Case of Asia Yuri Dikhanov 3 rd Regional Coordinating Agencies meeting October 28-30, 2015 Washington, DC losure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Background Asian comparisons as a part of the International Comparison Program (ICP) Why extrapolation between benchmark is necessary? Inconsistencies between PPPs: ICP benchmarks, national accounts deflators and CPIs Available information for extrapolation and ICP-SNA (CPI) consistency studies
ICP-CPI inconsistencies Biggest difference: PPPs are spatial and CPIs are temporal indices Comparing CPIs to changes in PPPs over time involves many factors other than price movements. CPIs are mostly [but not always] estimated using Laspeyresindices at the aggregate level, based on different years. ICP uses the EKS (Fisher) index. Addressing inconsistencies: Bridge the two benchmarks (2005 and 2011) using the 12 COICOP category CPI components Predict PPPs by applying CPI components to the corresponding PPP categories
Linking 2005 and 2011 ICP: Asia Comparable in terms of: Structured product descriptions for individual items of HH Set of countries (22 out of 23) Sampling framework Classification systems used Methodology Consistent comparison across time and space is possible
Scope of ICP comparison 2005 comparison, 22 countries, 108 basic headings, EKS (Fisher) aggregation Implicit ICP inflation 2011 comparison, 22 countries, 108 basic headings, EKS (Fisher) aggregation Joint 2005-2011 comparison
Scope of extrapolation 2005 comparison, 8 countries, 12 COICOP categories EKS (Fisher or Tornqvist) aggregation - CPI, 12 COICOP categories 8 countries - GDP deflators, 12 COICOP categories 5 countries 2011 comparison, 8 countries, 12 COICOP categories EKS (Fisher or Tornqvist) aggregation
Elementary aggregation in ICP Country-Product Dummy method: lnp cp = y cp = x cp β+ ε cp (1) where pcpis the price of product p in country c; and Dcj and Dpare i country and product dummies, respectively; p and c are number of products and countries, respectively; xcp = Dc2... DccDpDp 1 2... Dpp T = 2... c 1 2... p β α α γγ γ
Aggregate index in ICP: EKS (Fisher) EKS( F) j,k = 1 m m F j,l (2) l= 1 k,l F where F j,k - Fisher index for country j and country k m - number of all countries
Index number problem in extrapolation ICP uses multilateral index: EKS (Fisher) and CPD at the elementary level In Asia most CPI uses Laspeyreswith varying base years (aggregate) At the elementary level: some uses geometric, harmonic or arithmetic average CPI uses national expenditure weights ICP uses national accounts weights (in the context of international comparison)
Table 1. Consistency of PPPs Estimated at Different Levels of Aggregation BAN HKG IND MAL PHI SIN SRI THA SD PPPs: single-year estimation (HKG = 1) 2005 ICP, 22 countries 108 BHs, EKS (Fisher) 3.387 1.000 2.072 0.276 3.277 0.188 5.100 2.404 8 countries, COICOP12, EKS (Törnqvist) 3.481 1.000 2.143 0.278 3.298 0.188 5.236 2.427 COICOP12-8 vs. ICP108-22 (geomean=1) 0.986 1.014 0.980 1.007 1.007 1.014 0.987 1.004 1.25% 8 countries, COICOP12, EKS (Fisher) 3.500 1.000 2.141 0.279 3.312 0.188 5.304 2.439 COICOP12-8 vs. ICP108-22 (geomean=1) 0.985 1.018 0.985 1.007 1.007 1.015 0.979 1.004 1.40% 2011 ICP, 22 countries 108 BHs, EKS (Fisher) 4.281 1.000 2.586 0.270 3.188 0.191 7.099 2.181 8 countries, COICOP12, EKS (Törnqvist) 4.339 1.000 2.649 0.272 3.220 0.191 7.278 2.203 COICOP12-8 vs. ICP108-22 (geomean=1) 0.998 1.012 0.987 1.002 1.001 1.012 0.987 1.002 0.88% 8 countries, COICOP12, EKS (Fisher) 4.345 1.000 2.654 0.272 3.219 0.190 7.317 2.202 COICOP12-8 vs. ICP108-22 (geomean=1) 0.997 1.012 0.986 1.004 1.002 1.016 0.982 1.002 1.10%
ICP 2005 and 2011: Consistency of Joint vs. Single-year aggregation BAN HKG IND MAL PHI SIN SRI THA SD ICP2005, EKS, 108 BH 3.387 1.000 2.072 0.276 3.277 0.188 5.100 2.404 ICP2005, EKS, 108 BH Joint 3.287 1.000 2.025 0.273 3.201 0.187 5.019 2.387 ICP2011, EKS, 108 BH 4.281 1.000 2.586 0.270 3.188 0.191 7.099 2.181 ICP2011, EKS, 108 BH Joint 4.405 1.000 2.637 0.273 3.255 0.192 7.217 2.207 2005, Joint vs. Individual 0.985 1.015 0.992 1.003 0.991 1.009 0.999 1.007 0.96% 2011, Joint vs. Individual 1.015 0.986 1.006 0.997 1.007 0.990 1.002 0.998 0.87%
CPI vs. Implicit ICP Deflators (Joint) BAN HKG IND MAL PHI SIN SRI THA SD CPI, official 1.678 1.176 1.655 1.177 1.329 1.197 1.774 1.199 22 countries 108 BHs, EKS (Fisher) 1.681 1.255 1.634 1.253 1.276 1.288 1.804 1.160 8 countries, COICOP12, EKS (Törnqvist) 1.658 1.253 1.620 1.257 1.276 1.288 1.815 1.161 8 countries, COICOP12, EKS (Fisher) 1.648 1.253 1.626 1.253 1.272 1.276 1.807 1.158 difference from official CPI 22 countries 108 BHs, EKS (Fisher) 1.002 1.067 0.987 1.065 0.960 1.076 1.017 0.968 4.33% 8 countries, COICOP12, EKS (Törnqvist) 0.988 1.065 0.979 1.068 0.960 1.076 1.023 0.968 4.52% 8 countries, COICOP12, EKS (Fisher) 0.982 1.065 0.983 1.065 0.957 1.067 1.019 0.966 4.40%
CPI vs. Implicit ICP Deflators 1.100 IMPLICIT ICP DEFLATORS VS. CPI 1.050 1.000 0.950 0.900 BAN HKG IND MAL PHI SIN SRI THA 22 countries 108 BHs, EKS (Fisher) 8 countries, COICOP12, EKS (Törnqvist) 8 countries, COICOP12, EKS (Fisher)
Table 4. ICP-CPI Consistency: Extrapolation vs. Actual Benchmark Table 4. ICP-CPI CONSISTENCY: EXTRAPOLATION VS. ACTUAL BENCHMARK extrapolation, 2011 to 2005, with CPI components BAN HKG IND MAL PHI SIN SRI THA SD ICP, 22 countries 108 BHs, EKS (Fisher) 3.387 1.000 2.072 0.276 3.277 0.188 5.100 2.404 8 countries, COICOP12, EKS (Törnqvist) 3.278 1.000 2.093 0.277 2.980 0.187 5.035 2.280 COICOP12-8 vs. ICP108-22 (geomean=1) 1.009 0.977 0.967 0.974 1.075 0.982 0.990 1.030 3.40% 8 countries, COICOP12, EKS (Fisher) 3.292 1.000 2.101 0.277 2.971 0.187 5.076 2.282 COICOP12-8 vs. ICP108-22 (geomean=1) 1.007 0.978 0.965 0.977 1.079 0.985 0.983 1.031 3.55% extrapolation, 2005 to 2011, with CPI components ICP, 22 countries 108 BHs, EKS (Fisher) 4.281 1.000 2.586 0.270 3.188 0.191 7.099 2.181 8 countries, COICOP12, EKS (Törnqvist) 4.606 1.000 2.739 0.274 3.574 0.191 7.537 2.348 Detailed CPI extrapolation: Eliminate both differences in index numbers between ICP and CPIs and index number differences among CPIs. > Apply detailed CPI by 12 COICOP categories to both benchmarks > Compare the results to the actual benchmarks COICOP12-8 vs. ICP108-22 (geomean=1) 0.976 1.051 0.992 1.034 0.937 1.050 0.990 0.976 3.78% 8 countries, COICOP12, EKS (Fisher) 4.646 1.000 2.751 0.275 3.595 0.191 7.626 2.364 COICOP12-8 vs. ICP108-22 (geomean=1) 0.973 1.056 0.993 1.035 0.937 1.056 0.983 0.974 4.07%
Precision: CPI vs. GDP (HHCE) Deflator Components Precision of Extrapolation with CPI Components Precision of Extrapolation with GDP deflators 1.10 1.15 1.05 1.1 1.00 1.05 0.95 1 0.90 0.95 0.85 BAN HKG IND MAL PHI SIN SRI THA 0.9 HKG MAL PHI SIN THA extrapolation, 2011 to 2005, with CPI components extrapolation, 2005 to 2011, with CPI components extrapolation, 2005 to 2011, with CPI components extrapolation, 2011 to 2005, with SNA components
Comparative Measures of Inflation: CPI, GDP (HHCE) deflators, ICP implicit inflation 1.35 Various Measures of Inflation 1.3 1.25 1.2 1.15 1.1 HKG MAL PHI SIN THA international inflation (from joint 2005-2011 comparison) CPI est. (Tornqvist) GDP deflator est. (Tornqvist) official CPI official GDP deflator
Summary The current study shows that in extrapolating ICP benchmarks with CPIs and GDP deflators, we observe in Asia: Accuracy of extrapolation 3.4 to 4.1% (CPI components) 5.1% to 5.9% (with GDP (HHCE) component deflators) These discrepancies are irreducible further Two distinct clusters observed: Higher income showing price levels higher than predicted with the CPI; Lower income having price levels close to or lower than their predicted values.
ANNEX: Case of Africa Time period: 2005-11 18 countries COICOP 12 (most countries) No joint comparison (so no direct estimate of ICP inflation) No GDP details (HHCE) available
4.000 Inconsistencies between CPI and PPP movements (versus geomean) 2.000 1.000 0.500 ben bfa civ cmr dji gab gnb gui/gin mdg mli mrt mwi ner sen tgo tza uga zaf Total Household/Individual Consumption by household Alcoholic Beverages, Tobacco and Narcotics Housing, water, electricity, gas and other fuels Health Communication Education Miscellaneous Goods and Services Food and Non-alcoholic Beverages Clothing and Footwear Furnishings, household equipment and routine household maintenance Transport Recreation and Culture Restaurants and hotels
CPI-ICP inconsistencies, by component CPI/ICP INCONSISTENCIES ben bfa civ cmr dji gab gnb gui/gin mdg mli mrt mwi ner sen tgo tza uga zaf max/min mean CV Total Household/Individual Consumption by hou 0.967 0.875 1.100 1.029 1.063 0.966 0.991 1.122 1.273 1.062 1.105 0.844 0.940 0.975 0.963 0.961 0.951 0.901 1.5095 1.0000 10.0% Food and Non-alcoholic Beverages 1.019 0.859 1.182 1.059 1.180 0.865 1.001 1.183 1.194 1.127 1.157 0.702 0.934 1.021 0.907 0.909 0.997 0.883 1.7015 1.0000 13.8% Alcoholic Beverages, Tobacco and Narcotics 1.088 0.985 1.064 1.093 1.288 0.774 1.032 0.968 0.941 0.840 0.959 1.183 1.6634 1.0089 13.3% Clothing and Footwear 0.988 0.762 0.866 0.910 0.965 1.041 1.208 1.007 1.714 0.989 1.277 0.871 1.008 0.968 1.191 0.980 1.007 0.639 2.6834 1.0000 22.3% Housing, water, electricity, gas and other fuels 0.733 0.886 1.059 1.041 1.222 1.912 1.399 0.919 0.755 1.121 0.758 1.007 0.673 0.974 1.198 2.8389 1.0058 30.2% Furnishings, household equipment and routine h 0.866 0.937 1.120 0.893 1.102 1.134 0.855 0.797 1.514 0.956 0.922 1.006 1.126 1.007 1.055 0.974 1.184 0.780 1.9396 1.0000 16.8% Health 0.657 0.721 1.513 0.690 1.050 0.896 0.984 1.407 2.127 1.191 0.829 0.850 1.051 1.245 0.880 0.903 3.2377 1.0111 36.0% Transport 1.255 1.181 1.231 0.958 1.022 1.216 0.951 1.023 1.122 0.918 0.988 0.984 1.064 0.964 0.964 0.722 0.680 1.8466 1.0016 15.5% Communication 3.498 0.799 0.909 0.513 2.270 0.850 0.578 1.063 1.720 0.629 6.8192 1.0529 86.0% Recreation and Culture 1.015 0.880 1.190 1.186 0.799 1.264 0.810 0.699 1.621 1.187 1.011 1.092 0.945 0.877 1.106 0.938 2.3173 1.0173 21.4% Education 0.601 1.743 1.029 0.628 0.887 0.885 0.958 0.712 1.649 0.584 2.878 1.674 0.756 0.582 1.113 1.532 4.9461 1.0147 59.1% Restaurants and hotels 0.992 1.165 1.259 1.045 1.045 0.774 2.338 0.798 1.001 0.978 1.183 0.844 0.749 3.1226 1.0406 37.7% Miscellaneous Goods and Services 1.185 0.807 1.286 0.756 0.809 0.647 1.599 1.176 1.378 1.098 0.814 0.918 1.079 0.819 1.023 2.4701 0.9955 25.8%
Conclusions The largest inconsistencies observed are for Education (CV 59.1%), Communication 86%; Predicted vs. Benchmark ratio for Household Consumption ranged from 84.4% to 127.3%; No distinct pattern or clustering observed