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Comparing GDP in Constant and in Chained Prices: Some New Results

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  • Dumagan, Jesus C.

Abstract

This paper’s framework for GDP in chained prices yields GDP in constant prices as a special case of constant relative prices, i.e., these GDP measures differ only when relative prices change. The framework has a novel additive procedure, counter to the prevailing view that GDP in chained prices is non-additive. This procedure allows relative prices to change but when they are constant, components in chained and in constant prices are equal, implying consistency with the additivity of GDP in constant prices. Finally, GDP conversion from constant to chained prices removes the fixed base--by making the immediately preceding period the base, i.e., continuous updating--and allows relative prices to change and, thus, removes the base-period dependence and substitution bias of GDP in constant prices.

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Bibliographic Info

Paper provided by Philippine Institute for Development Studies in its series Discussion Papers with number DP 2009-08.

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Length: 11
Date of creation: 2009
Date of revision:
Handle: RePEc:phd:dpaper:dp_2009-08

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Keywords: real GDP; constant prices; chained prices; Fisher index; additivity;

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  1. Balk, Bert M., 2004. "Decompositions of Fisher indexes," Economics Letters, Elsevier, vol. 82(1), pages 107-113, January.
  2. Whelan, Karl, 2002. "A Guide to U.S. Chain Aggregated NIPA Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 48(2), pages 217-33, June.
  3. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
  4. Diewert, W Erwin, 1978. "Superlative Index Numbers and Consistency in Aggregation," Econometrica, Econometric Society, vol. 46(4), pages 883-900, July.
  5. Dumagan, Jesus C., 2008. "Avoiding Anomalies of GDP in Constant Prices by Conversion to Chained Prices: Accentuating Shifts in Philippine Economic Transformation," Discussion Papers DP 2008-24, Philippine Institute for Development Studies.
  6. Dumagan, Jesus C., 2002. "Comparing the superlative Tornqvist and Fisher ideal indexes," Economics Letters, Elsevier, vol. 76(2), pages 251-258, July.
  7. Jesus C. Dumagan, 2008. "Avoiding Anomalies of GDP in Constant Prices by Conversion to Chained Prices," Macroeconomics Working Papers 22632, East Asian Bureau of Economic Research.
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