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How do you extrapolate the PPP conversion factors estimated by the ICP?

The World Development Indicators (WDI) database provides time-series PPP conversion factors for total GDP and private consumption (household final consumption expenditure).

The International Comparison Program (ICP) provides PPP conversion factors for the two most recent benchmark years (2011 and 2017) and years in between the two benchmarks (2012-2016). For years before 2011 and after 2017, PPPs provided by the ICP are extrapolated to create a time series from 1990 to the latest year available. The method we use is to apply the difference between the rate of inflation observed in the country over each period from 2011 (for years before 2011) and 2017 (for years after 2017) compared with inflation in the United States over the same period to the benchmark PPP estimates. Extrapolation for the GDP conversion factor uses the change in the GDP implicit deflator*. Extrapolation for private consumption uses the change in the consumer price index (CPI).

For example, let’s say Brazil’s CPI in 2019 divided by its CPI in 2017 is 1.075, which represents 7.5% inflation over the period; and the ratio for the US over the same period is 1.043, or 4.3% inflation. We can take Brazil’s private consumption PPP conversion factor in 2017, which was 2.33, and multiply it by 1.075/1.043 to get a 2019 conversion factor estimate of 2.4. 

To illustrate the above example better, we have a full annotated code in R available on WDI’s GitHub. This R script implements the method described to extrapolate PPP conversion factors using WDI data.

For the European and non-European OECD countries, we incorporate annual PPPs from the Eurostat-OECD PPP Programme , which are based on a rolling survey approach applied by the Programme. We also extend these data historically back to 1990, if necessary and where possible, using our regular extrapolation method explained above.

For the methodology of ICP’s PPP estimation (2011-2017), please refer to the ICP website. For more information on the Eurostat-OECD PPP Programme, please visit their websites on PPPs (Eurostat | OECD).

* Previously, "GDP deflator (base year varies by country)" [NY.GDP.DEFL.ZS] had been used for this purpose. However, from May 2020, we introduced "GDP deflator: linked series (base year varies by country)" [NY.GDP.DEFL.ZS.AD]) in order to have PPP conversion factor without break in series.  

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