Transcript Purchasing Power or Producing Power Parities?

PPPs
A Note on Projecting Benchmark Result
Art Ridgeway
Based on a paper by
John Baldwin and Ryan Macdonald
Purchasing Power or Producing Power
Parities?
John Baldwin and Ryan Macdonald
(forthcoming)
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Statistics Canada • Statistique Canada
2016-04-02
Main result
 PPP programs as they are currently measured accord
(imperfectly) with a real Gross Domestic Income
concept, not a real Gross Domestic Product
 The comparison can be moved to a correct GDI concept
with a small change – using expenditure relative PPP
rather than exchange rate for the net trade balance
 Inter-temporal extrapolations using GDP deflators are
inappropriate – GDI deflators should be used
 Statistical systems are not currently structured to
facilitate a GDP based comparison
• Increases in export and import data collection are needed for a
GDP based comparison
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2016-04-02
Projection Methods Vs Base Years
US/Canada PPP Level Estimates
0.92
0.90
0.88
0.86
0.84
0.82
0.80
1990
1995
2000
2005
Benchmark (Eurostat/OECD Method)
Benchmark Based on GDI
GDP Projector (Base = GDP PPP Estimate in 1999)
GDI Projector (Base = GDI PPP Estimate in 1999)
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2016-04-02
Purchasing Vs Producing Power Parities
 The GDP PPP can be decomposed into two
pieces
• a contribution from domestic prices that corresponds
to the GDI based reference year
• a contribution from the trading gain that comes from
the terms of trade
 Since 2000 the trading gain has often been the
dominant factor
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2016-04-02
GDP PPP Decomposed into FDE and
Trading Gain Contributions
Annual Producing Pow er Parity Projector Grow th and Contributions from
Domestic Price Grow th and the Trading Gain
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
-2.0%
-2.5%
-3.0%
2000
2001
Ctg FDE Prices
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2002
2003
2004
Ctg Trading Gain
2005
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2006
2007
2008
GDP PPP Projector Grow th
2016-04-02
Purchasing Vs Producing Power Parities
 The influence of the trading gain is not unique to
Canada
 The next chart uses OECD data to compare
bilateral PPP index changes between the US
and Australia, Canada, New Zealand, Norway,
Japan and Korea
 In resource exporting countries the GDP and
GDI based PPPs present conflicting outcomes
 In resource importing countries the trading gain
reinforces domestic price movements
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2016-04-02
Result not unique to Canada
Average Annual Producing Pow er Parity Projector Grow th and
Contributions from FDE Prices and the Trading Gain 2003-2007
USA/Country i
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
Australia
Canada
New Zealand
Norw ay
Commodity Exporters
Ctg Final Domestic Expenditure Prices
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Japan
Korea
Commodity Importers
Ctg Trading Gain
Statistics Canada • Statistique Canada
GDP Based PPP Projector
2016-04-02
Conclusions
 Current statistical systems facilitate a
purchasing power parity based on GDI
 Producing power parities projections in Canada
will in future be based on GDI rather than GDP
 Further work is needed on producing power
parity estimates and those that have been
calculated are viewed as relatively inaccurate
should be used with caution
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Statistics Canada • Statistique Canada
2016-04-02