The ICP Methodological Handbook is at the center of a range of documentation prepared for the ICP. It provides the theoretical and methodological background that guided the data collection, analysis, and estimation of PPPs for the ICP results; and in some cases the choices of methodology that could be used. The Methodological Handbook is a work in progress because some pieces of methodology are being improved from those implemented in the previous ICP round. The handbook is intended mainly for all those involved in, or with responsibilities for, the compilation of PPPs — including professional economists and statisticians working at all levels in National Statistical Offices and the various international and regional agencies involved in the program.
Most of the contents of the handbook is being translated into the ICP book.
Preface. What is ICP?
Chapter 1. Overview of the ICP
This chapter provides an overview of the International Comparison Program (ICP). It discusses the purpose of the program, what is Purchasing Power Parity (PPP), how to calculate PPPs, the inter-relationships between PPPs and exchange rates, the use of PPPs and their role in the statistical system.
Chapter 2. Governance and Execution of ICP 2003-2006
This chapter looks at arrangements made to rectify problems in past rounds, and the planning and execution strategy of ICP 2003-2006. It explains issues such as the ownership of the ICP, funding, organization and governance structure, including roles and responsibilities of the Executive Board and Technical Advisory Group.
Chapter 3. GDP and Main Expenditure Aggregates
This chapter defines the final expenditure components of GDP and explains the prices used to value them. It introduces the classifications to be used for the different expenditure components and describes the data sources commonly used to break down final expenditures in the necessary detail.
Annex 1. Spreadsheet for Weights
Annex 2. Expenditure Weights Diagnostic Module
Annex 3. Weights Diagnostic Module
Chapter 4. Price Concepts and Definitions
This chapter and the following chapter are concerned mainly with how to draw up the lists of products for pricing in different countries. Chapter 4 addresses topics such as basic price concepts, representativity, comparability, brands, quality and methods of quality adjustment, etc. It also includes a summary description of how Purchasing Power Parities are calculated at the level of the basic heading, as an understanding of the methodology used helps elucidate the role of representativity and comparability in drawing up lists of products.
Chapter 5. Product Lists, Specifications and the Pre-Survey
This chapter describes how the lists of products to be used for pricing by countries are drawn up. It explains how the Structured Product Descriptions (SPDs) are constructed and how the detailed Product Specifications (PSs) which are used by the price collectors in the field are derived from the SPDs. The first part of the chapter is devoted to Structured Product Descriptions and the related Product Specifications. Subsequent sections describe the Pre-Survey and the process of building up the final lists of products to be priced.
Annex. Examples of Structured Product Descriptions
Chapter 6. Sampling and Price Collection
This chapter is concerned with the sampling survey procedures to be used to collect the prices of household consumption goods and services. The chapter has two annexes. The first deals with the estimation of target PPP indices from samples of price observations. The annex also addresses the issue of missing prices. The second annex deals with the question of the sizes of the samples of outlets needed for price collection purposes. It shows how to calculate the minimum sample sizes needed to achieve certain levels of precision in the estimated average prices.
Chapter 7. Editing and Validation
This chapter contains guidelines for validation and editing of ICP data at national and regional levels with reference to the ICP/CPI Tool Pack. It addresses issues such as distribution of responsibilities at the national level, organization of ICP price collection within a country, the exact matching approach and exceptions to it, numeric checking of preliminary input data, outliers and statistical inference, validation steps at the regional level, the iterative revision of prices, etc. It describes the use of the Quaranta Tables as well as the Dikhanov Tables recently developed.
Chapter 8. Government Services
This chapter describes the information on government services that is required for the ICP 2003-2006 round. Chapter 3 deals with the expenditure weights that are required for government consumption expenditure and this material is not repeated here. The main focus of the chapter is on the price information needed for government and in particular on the data needed on compensation of government employees.
Annex. Worksheet for Annual Compensation
Chapter 9. Gross Capital Formation
This chapter provides a detailed explanation of issues related to gross capital formation, including price surveys for gross capital formation, some related problems, representativity and comparability. It provides a review of the Basket of Construction Components and methods to derive weights needed to estimate construction PPPs.
Annex. Use of Exchange Rates as Approximate PPPs for Machinery and Equipment
Chapter 10. Dwelling Services
This chapter explains: (a) the methods that may be used to estimate expenditure on dwellings as part of final consumption expenditure of households; (b) the information required on rents; and (c) the data on dwelling services that participating countries are required to submit for ICP 2003-2006. It also contains a questionnaire on dwellings.
Annex 1. Dwelling Services Questionnaires and Guidelines
Annex 2. Housing Questionnaires
Chapter 11. Estimation of PPPs for Basic Headings Within Regions
This chapter describes the methods that may be used to estimate Purchasing Power Parities at the level of a basic heading. The national average prices of the selected products within each basic heading are used as inputs into the estimation of the parities. The national average prices are those emerging from the price collection and validation processes described in the preceding chapters.
Chapter 12. Aggregation Methods
This chapter describes the methods used to calculate PPPs and quantity indices for higher level expenditure aggregates for the regional level comparisons. A higher level aggregate is an expenditure class, group or category obtained by combining two or more basic headings. The nominal value of an expenditure aggregate, expressed in its own national currency, is obtained simply by summing the values of the expenditures for the set of basic headings of which it is composed. Quantity indices may be converted into real expenditures by multiplying them by the corresponding expenditures in the base country.
Annex. Reference PPPs
Chapter 13. The Ring Comparison — Linking the Regions
This chapter mainly describes how a “Ring” price collection program is organized and carried out to link blocks of within-region PPPs. The conceptualization and selection of Ring Countries are highlighted. Also discussed are the development of a Ring or global product list, and Ring data validation.
Chapter 14. The Ring Comparison — Linking Within-Region PPPs using Between-Region PPPs
The purpose of this chapter is to explain how within-region basic heading PPPs — that is, PPPs between countries within the same region — can be linked to obtain a global set of transitive PPPs at the basic heading level covering all the countries participating in ICP 2003-2006.
Chapter 15. Linking PPPs and Real Expenditures for GDP and Lower Level Aggregates
This chapter describes the ways in which the PPPs and real expenditures for aggregates such as food consumption, total household consumption or GDP calculated by the regions may be linked to obtain a global set of aggregate PPPs and real expenditures covering all the countries included in the ICP program.