Purchasing Power Parity Exchange Rates from Household Survey Data: India and Indonesia

Princeton Research Program in Development Studies Working Paper

62 Pages Posted: 13 Jul 2004

See all articles by Angus Deaton

Angus Deaton

Princeton University; National Bureau of Economic Research (NBER)

Jed Friedman

World Bank - Development Research Group (DECRG); World Bank Group

Vivi Alatas

World Bank - Jakarta

Date Written: February 2004

Abstract

Purchasing power parity (PPP) exchange rates are extensively used by researchers and by policymakers. This paper proposes and implements a new methodology for calculating PPPs using information on unit values from household surveys. Although unit values are not identical to prices, they have compensating advantages. Large household surveys contain several million unit values, they are tied to actual transactions, and they are naturally linked to household characteristics such as income. In consequence, it is possible to calculate PPPs for different social groups, including PPPs for the poor. The paper calculates multilateral price indexes for the states and sectors of India, as well as PPPs for rural and urban Indonesia together with rural and urban India. PPPs for the poor are distinguished from general PPPs. The internal PPPs for India are not very different from previous estimates based on bilateral comparisons, but the estimated PPP between India and Indonesia is very different from the numbers calculated by either the Penn World Table or the World Bank. It implies that either India is much better-off, or Indonesia much poorer (or both) than is generally supposed.

Keywords: PPP exchange rates, unit values, household surveys, poverty, India, Indonesia

JEL Classification: C13, O11, O12, O47

Suggested Citation

Deaton, Angus S. and Friedman, Jed Arnold and Alatas, Vivi, Purchasing Power Parity Exchange Rates from Household Survey Data: India and Indonesia (February 2004). Princeton Research Program in Development Studies Working Paper, Available at SSRN: https://ssrn.com/abstract=563981 or http://dx.doi.org/10.2139/ssrn.563981

Angus S. Deaton (Contact Author)

Princeton University ( email )

Woodrow Wilson School
Princeton, NJ 08544
United States
609-258-5967 (Phone)
609-258-5974 (Fax)

HOME PAGE: http://www.wws.princeton.edu/~deaton

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jed Arnold Friedman

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

World Bank Group ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Vivi Alatas

World Bank - Jakarta ( email )

Jakarta Stock Exchange Bldg. Tower 2, 12th Floor
Jl. Jend. Sudirman Kav. 52-53
Jakarta, 12190
Indonesia

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
609
Abstract Views
3,703
rank
48,871
PlumX Metrics