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| Definition: |
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Purchasing power parities (PPPs) are the rates of currency conversion that equalise the purchasing power of different currencies by eliminating the differences in price levels between countries. In their simplest form, PPPs are simply price relatives which show the ratio of the prices in national currencies of the same good or service in different countries.
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| Context: |
PPPs are calculated in three stages:
- first for individual products,
- then for groups of products or basic headings and,
- finally, for groups of basic headings or aggregates.
The PPPs for basic headings are unweighted averages of the PPPs for individual products. The PPPs for aggregates are weighted averages of the PPPs for basic headings.
The weights used are the expenditures on the basic headings. PPPs at all stages are price relatives. They show how many units of currency A need to be spent in country A to obtain the same volume of a product or a basic heading or an aggregate that X units of currency B purchases in country B.
In the case of a single product, the “same volume” means “identical volume”. But in the case of the complex assortment of goods and services that make up an aggregate such as GDP, the “same volume” does not mean an “identical basket of goods and services”.
The composition of the basket will vary between countries according to their economic, social and cultural differences, but each basket will provide equivalent satisfaction or utility.
Also referred to as “parity” or “parities”.
Eurostat, OECD, 2007, Eurostat-OECD Methodological Manual on Purchasing Power Parities, OECD, Paris – Annex VII, Glossary of terms and abbreviations.
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| Source
Publication: |
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OECD National accounts, Purchasing Power Parities, Questions about PPPs website.
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| Statistical
Theme: Prices and purchasing power parities - Purchasing power parities |
| Created
on Tuesday, September 25, 2001 |
| Last
updated on Tuesday, June 11, 2013 |
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