A Review of PPP-Adjusted GDP Estimation and its Potential Use for the Fund's Operational Purposes
IMF Working Papers, February 1, 1995
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- A Review of PPP-Adjusted GDP Estimation and its Potential Use for the Fund's Operational Purposes
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Bibliographic details
- Authors: Nancy L Wagner
- Published: February 1, 1995
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451843613.001
Purpose and scope
- Examines the conversion of economic aggregates expressed in domestic currencies into a common numeraire currency such as the U.S. dollar or the SDR.
- Evaluates the recommendation to use purchasing power parity (PPP) rates instead of market (or official) exchange rates for cross-country comparisons to better reflect real economic activity.
- Reviews data and methodology underlying the construction of PPP indices, with particular emphasis on:
- PPP-based estimates of GDP used in the Fund’s World Economic Outlook.
- PPP-based estimates of GDP used in the World Bank’s World Development Report.
- Examines issues associated with the use of PPP-based estimates of GDP for the Fund’s operational purposes (such as quota calculations or determination of SAF or ESAF eligibility).
Key findings and observations
- PPP rates are conceptually appropriate conversion factors for international comparisons because market exchange rates are subject to fluctuations that may distort comparisons of real economic activity.
- Practical implementation of PPP indices raises questions regarding the quality of the PPP indices currently available.
- The paper focuses on the data and methodology underlying PPP construction and the implications of those methods for PPP-adjusted GDP estimates used in major institutional publications.
Issues for Fund operational use
- Considerations for using PPP-adjusted GDP estimates in operational contexts include:
- Quota calculations.
- Determination of SAF eligibility.
- Determination of ESAF eligibility.
- The paper highlights that methodological and data-quality issues in PPP indices can affect the reliability of PPP-adjusted GDP for these operational purposes.
Subject areas and keywords
- Subject: Exchange rates; Expenditure; Foreign exchange; Market exchange rates; National accounts; Public investment and public-private partnerships (PPP); Purchasing power; Purchasing power parity
- Keywords: countries' PPP; Exchange rates; GDP estimate; GDP share; Global; ICP estimate; ICP price survey; ICP survey; ICP-style price survey data; Market exchange rates; PPP conversion factors; PPP index; PPP-adjusted GDP; price level; Public investment and public-private partnerships (PPP); Purchasing power; Purchasing power parity; real GDP; U.S. dollar; WP