Value Adjustment
About spatial and temporal transfer
The unit values obtained from the studies selected should be adjusted in order to offset influences concerning differences of price level and time. More specific, two adjustments should be made: for the spatial dimension of transfer and the temporal dimension of transfer.
As far as the transnational transfer is concerned, it is necessary to take into account the purchasing power and monetary unit between the country of the original study and that of the policy site. The literature shows that a correctly measured Power Purchasing Parity Index (PPPI) is the preferable index for international price comparisons. PPPI is the ratio of the weighted average price of a basket of goods between two countries, with expenditure shares as the price weights. PPPIs are used in numerous publications, such as the World Economic Outlook, International Monetary Fund; Human Development Report, United Nations; World Development Indicators, World Bank; National Accounts and Main Economic Indicators, the Organization for Economic Cooperation and Development (OECD); and National Accounts and Comparisons in Real Terms of the Aggregates of the European System of Economic Accounts.
The time difference between the primary study and the policy study is adjusted by means of the Consumer Pricing Index (CP), which reflects the rate of inflation.
Adjustment Equation
The following equation is used to convert an estimate from a "study" country (country0) in year of the initial estimate (year0) into an estimate for a "policy" country (country1) and in a different year (year1):
Value (year 1 country 1) = Value (country 0, year 0) * (PPPI country 1 year 0/ PPPI country 0 year 0) * (CPI country 1 year 1/CPI country 1 year 0)