HANDBOOK OF THE INTERNATIONAL COMPARISON PROGRAMME

GLOSSARY

Aggregates of basic headings. Any aggregation of groups of basic headings, such as bread and cereals, up to GDP. Also known as summary or analytical categories.

Asterisked (*) items. The practice of assigning or not assigning an asterisk (*) to items according to whether the particular good or service is important or not important in the country in that basic heading. Items marked with an asterisk are considered important in the basic heading; the use of this procedure is outlined in chapter V.

Base-country invariance. The index-number property that involves the symmetrical treatment of all countries, with the result that the relative index-number standings of the countries are not affected by the choice of the reference (numeraire) country.

Basic headings. The subdivisions of final expenditure that correspond to the first aggregation of price (or quantity) ratios for individual specifications or items. (For the list of basic headings, see annex III of the Handbook.) Basic headings are sometimes referred to as detailed categories.

Bills-of-quantity approach. The method used to build up the costs of construction projects from the individual modules of activity involved (see chap. IV).

Binary comparison. A price or quantity comparison between two countries that draws upon data only for those two countries. Also known as bilateral comparisons.

Bridge-country binary comparison. A price or quantity comparison between a pair of countries derived from the comparison of each country with a third country. For example, given IA,and I,, the bridge-country method of obtaining IA is to divide IA,by I., where I is a price or quantity index and j, k and I are countries. This is a common way of linking through an asterisked country, as in the case of the Eastern European countries known as the Group II countries, in which Austria served as the bridge country.

CEP (consumption expenditures of the population). The ICP concept of "consumption" that includes both household expenditures and expenditures of government on such categories as health and education.

Characteristicity. The property whereby the sample of prices or quantities and the weights used in an international comparison conform closely to a representative sample of items and to the weights of each of the countries included in the comparison.

Circularity or transitivity. The property of indexes when the price or quantity relationship among any two of three countries is the same, whether derived from an original-country comparison between them or from the comparison of each country with any third country. In the case of three countries, where I is a price or quantity index and j, k and 1 are countries, the circularity test is satisfied if I_j/k = I_j/l/I_k/l When this test is satisfied, there is a unique cardinal scaling of countries with respect trelative quantities and prices.

Comparative Price level. A comparative price level is defined as the purchasing-power parity divided by the exchange rate. (See Purchasing-power parity.) Expressed another way, the comparative price level for a bundle of goods is its cost in one country as a percentage of the cost of the same bundle in another country, when prices in both countries are expressed in a common currency, with the official exchange rate being used for currency conversions,

Core commodity. A good or service that is widely available throughout the world so that a substantial number of countries in each region can provide prices for these items. Core commodities can serve as the basis for linking the countries of the world to obtain transitive parities at the basic heading level.

Core country. An alternative or supplement to the core commodity approach. Core countries agree to price a common basket that allows linking of all areas of the world at the basic heading level; or certain pairs of core countries make binary comparisons that allow there to be links at the basic heading level between all groups of countries participating in the comparison.

Country-product-dummy (CPD) method. A generalized bridge-country method in which regression analysis is used to obtain transitive price comparisons for each basic heading. The basic data for a given category consist of all the prices available for the various specifications for the entire collection of countries. The basic assumption is that within a given basic heading for a given country, the price of an item depends in a multiplicative way on a country factor and a price factor to be estimated from the sample of item-country prices in each heading. It follows from this that the logarithms of the prices are regressed against two sets of dummy variables; one set contains a dummy for each specification; the second set, a dummy for each country other than the numeraire country. The transitive price comparisons are derived from the coefficients of the country dummies (see chap. V).

Country-reversal test. This test is satisfied if, when country j is taken as the base country, the price or quantity index for countries j and k is the reciprocal of the index when country k is the base country. For example, I_j/k* I_k/i = 1. where I is a price or quantity index.

Direct Price or quantity comparison. Made by comparing for two or more countries the prices or quantities for a representative sample of equivalent commodities. (See also Indirect price or quantity comparison.)

ECP (European Comparison Programme). The set of ICP comparisons for Europe carried out under the auspices of the Economic Commission for Europe. In the 1980 and 1985 comparisons, the ECP was built on the EC and OECD comparisons and a group for which Austria served as the centre for a set of binary comparisons.

EKS method. A multilateral method developed by 6. tltet6, P. K6ves and B. Szulc [Schultz] that computes the nth root of the product of all possible Fisher indexes between n countries. It has been used at the detailed heading level to obtain heading parities, and also at the GDP level. EKS has the properties of base-country invariance and transitivity (see chap. V and annex II).

Factor-reversal test. The condition that, for any given item, category or aggregate and for any given pair of countries, the product of the price ratio (or index) and the quantity ratio (or index) shall be equal to the expenditure ratio.

Final Products. Products purchased for own use and not for resale or for embodiment in a product for resale; those purchased by households, by government or by business on capital account.

Fisher, or "ideal", index. The geometric mean of two indexes: one, the harmonic mean of price (or quantity) relatives weighted by the numerator country's expenditures; the other, the arithmetic mean weighted by the denominator country's expenditures. (The more usual definition is the geometric mean of the own-weighted and base-country-weighted indexes.)

Fixity. The practice of fixing the results of an ICP aggregation for a country group when the country group is compared with a larger group. For example, the relation of France and Italy as given by Geary-Khamis or EKS for the 12 EC countries would be fixed so that within OECD, the France-Italy relationship would be preserved.

GCF (gross capital formation). The ICP concept of gross capital formation includes fixed capital formation, change in stocks, and net exports. Definitions of these three components correspond to SNA concepts, although the SNA does not include net exports in its definition of GCF.

GDP. Gross domestic product.

Geary-Khamis method. An aggregation method in which category "international prices" (reflecting relative category values) and country PPPs (depicting relative country price levels) are estimated simultaneously from a system of linear equations. Has the property of base-country invariance, matrix consistency and transitivity (see chap. V and annex II).

GFCE (government final consumption expenditure). The SNA concept of "government" that includes public expenditures on education, health and similar categories.

Hedonic methods. Use of regression equations to estimate price as a function of various characteristics of products. The resulting equation can be used to then estimate prices in different countries for the identical values of the characteristics and to thereby permit price comparisons.

ICP. International Comparison Project or International Comparison Programme.

"Ideal" index. See Fisher. or "ideal", index.

Identity. Specifications where the items compared in different countries are as close to identical as possible, as for the same brand name and model.

Importance of an item. In choosing items within a basic heading to be priced, the importance of the item in terms of wide availability and use should be a leading criterion.

Imputed Parities. The use of parities for one or several basic headings as estimates of the parities for other basic headings where similar items are purchased, e.g., parities for books purchased by educational institutions imputed from book purchases by consumers.

Indirect Price or quantity comparison. A comparison made by dividing the price or quantity ratio into the expenditure ratio. That is, the indirect quantity comparison between country j and country k for commodity i, q_ij/q_ik, is obtained from (p_ijq_ij/p_ikq_ik) / (p_ij/p_ik) == q_ij/q_ik, where the p's are the commodity prices. See also Direct price or cuantity comparison.

International dollars (IS). Dollars with the same purchasing power over total United States GDP as the United States dollar in a given year, but with a purchasing power over subaggregates and over detailed categories determined by average international prices rather than by United States relative prices. Regional comparisons often use other numeraire currencies, such as the Austrian schilling in the ECP, or a composite, such as the ECU in the European Communities.

International Price (I$). The international price of basic heading i is defined as a quantity-weighted average of the purchasing-power-adjusted parities at the basic heading level across the n countries (see annex II).

Matrix consistency. The property that makes it possible to have correct country-to-country quantity relationships for each detailed category and, at the same time, to obtain the correct country-to-country quantity relationships for any desired aggregation of categories simply by summing the quantities for the included categories. This requires that the quantities be stated in value terms so that (a) the values for any category are directly comparable between countries and (b) the values for any country are directly comparable between categories.

Multilateral comparison. A price or quantity comparison of more than two countries simultaneously that produces consistent relations among all pairs; that is, one that satisfies the circular test or the transitivity requirement.

Net foreign balance. Difference between exports and imports of goods and services. Also referred to as net exports, or balance of imports and exports.

Nominal expenditures. Expenditures in national currencies converted to a common currency at exchange rates.

Numeraire. Usually, the currency unit of one country is chosen as numeraire for expressing real expenditures and PPPS. The CPD, EKS, and Geary-Khamis procedures are all invariant as to which country is the numeraire or base. The numeraire may also be the average of a group, as has been the case in the EC and African comparisons.

Own weights. The weights of the numerator country; that is, the weights of country j in the index I_jk. The term is used, for example, to refer to the weights of the country, other than the United States, in a binary comparison in which the United States is the base country, k.

PLS (Paasche-Laspeyres-spread). The ratio of an index using own-country weights in a binary comparison to an index using base-country weights.

PFC (public final consumption expenditure). The ICP concept of "government'' that excludes public expenditures for education, health and similar categories.

PFCE (private final consumption expenditure). The SNA concept of .consumption" that excludes public expenditures on education, health and similar categories.

PPP. See Purchasing-power Parity.

Price-slope adjustments. Adjustment of prices to a common specification on the basis of the price determining effects of the key characteristics of the item. Similar to hedonic price estimation, except that adjustment factors are based on technical information, not on parameters estimated from a regression equation using sample price information.

Price tableau. A matrix of prices for a detailed category in which the rows represent different items and the columns the various countries.

Purchasing-power parity (PPP). The number of currency units required to buy goods equivalent to what can be bought with one unit of the currency of the base country; or with one unit of the common currency of a group of countries. Also referred to as a purchasing power standard. The PPP may be calculated over all of GDP, but also at levels of aggregation, such as capital formation.

Quality adjustment A term used to refer to adjustment of prices of items so that they represent a common quality. See Price-slope adjustments.

Quantity index. The quantity per capita of a category or aggregate of goods in one country expressed as a percentage of the quantity per capita in another country.

Quantity ratio. The quantity of a particular commodity in one country as a proportion of the quantity of the same commodity in another country.

Real Product or real quantity. The final product or quantity in two or more countries that is valued at common prices and, therefore, valued in comparable terms internationally.

Regionalization. The practice of building up world ICP comparisons on the basis of comparisons carried out in various country groupings such as EC or ESCAP.

Representativeness. A term used to describe how characteristic a particular item is of the types of goods and services included in a basic heading.

ENA. The United Nations System of National Accounts.

Specification. A description of an item for which a price comparison is to be made. The description is designed to ensure that goods of equivalent quality are compared. In the Handbook, the terms "item" and "specification" are used interchangeably.

Transaction equalitv. The index number property that makes the relative importance of each transaction involving the purchase of a final product dependent solely on its magnitude and not on the size of the country in which it occurred.

Transitivity requirements. See Circularity or transitivity.

Unique items. Items that are important in only one country within a region and consequently are not suitable for price comparisons.

Unit value. When the expenditures or value of production of an item is divided by the quantity, the result is known as a unit value. The more narrowly defined the quantity, the closer is a unit value to the price of a specification.