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Measuring Aggregate Economic Activity

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  • Valentinyi, Akos
  • Duernecker, Georg
  • Herrendorf, Berthold

Abstract

Popular ways of measuring aggregate economic activity include the Fisher index of GDP, Weitzman's NDP in consumption units, and GDP in consumption units. We show that it matters which measure is used, because their growth rates differed considerably in the postwar U.S. We compare the properties of the measures in the two-sector growth model and show that the Fisher index of GDP is the preferable measure to use. It has a welfare interpretation under mild restrictions that allow the growth model to match the observed secular decline in the relative price of investment and the observed productivity growth slowdown.

Suggested Citation

  • Valentinyi, Akos & Duernecker, Georg & Herrendorf, Berthold, 2020. "Measuring Aggregate Economic Activity," CEPR Discussion Papers 12300, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:12300
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    References listed on IDEAS

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    1. Bridgman, Benjamin & Duernecker, Georg & Herrendorf, Berthold, 2018. "Structural transformation, marketization, and household production around the world," Journal of Development Economics, Elsevier, vol. 133(C), pages 102-126.
    2. Hulten, Charles R, 1992. " Accounting for the Wealth of Nations: The Net versus Gross Output Controversy and Its Ramifications," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(0), pages 9-24, Supplemen.
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    5. Martin L. Weitzman, 1976. "On the Welfare Significance of National Product in a Dynamic Economy," The Quarterly Journal of Economics, Oxford University Press, vol. 90(1), pages 156-162.
    6. Timo Boppart, 2014. "Structural Change and the Kaldor Facts in a Growth Model With Relative Price Effects and Non‐Gorman Preferences," Econometrica, Econometric Society, vol. 82, pages 2167-2196, November.
    7. Miguel León-Ledesma & Alessio Moro, 2020. "The Rise of Services and Balanced Growth in Theory and Data," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(4), pages 109-146, October.
    8. Robert J Barro, 2021. "Double Counting of Investment," The Economic Journal, Royal Economic Society, vol. 131(638), pages 2333-2356.
    9. Herrendorf, Berthold & Rogerson, Richard & Valentinyi, Ákos, 2014. "Growth and Structural Transformation," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 6, pages 855-941, Elsevier.
    10. Heal, Geoffrey & Kristrom, Bengt, 2005. "National income and the environment," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 3, chapter 22, pages 1147-1217, Elsevier.
    11. Alessio Moro, 2015. "Structural Change, Growth, and Volatility," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(3), pages 259-294, July.
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    Cited by:

    1. Moro, Alessio & Valdes, Carlo, 2019. "Stuctural transformation in general equilibrium," MERIT Working Papers 2019-049, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    2. Valentinyi, Akos & Herrendorf, Berthold & Duernecker, Georg, 2017. "Structural Change within the Service Sector and the Future of Baumol's Disease," CEPR Discussion Papers 12467, C.E.P.R. Discussion Papers.
    3. Berthold Herrendorf & Richard Rogerson & Akos Valentinyi, 2019. "Growth and the Kaldor Facts," Review, Federal Reserve Bank of St. Louis, vol. 101(4), pages 259-276.

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    More about this item

    Keywords

    Fisher index; Productivity growth slowdown; Weitzman's ndp;
    All these keywords.

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O51 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada

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