Implementing Weights for Additivity of Chained Volume Measures in the National Accounts
In current practice, subaggregate chained volume measures (CVMs) are neither weighted nor additive. This paper derives and implements "weights" for weighted subaggregate CVMs to be additive (i.e., their sum equals aggregate CVM) because without weights, nonadditivity permits the nonsensical result that a subaggregate CVM could exceed aggregate CVM. The weights are ratios of subaggregate to aggregate chained price deflators that exceed, equal, or fall below 1 depending on relative prices. CVMs in current practice are additive in the special case of constant relative prices when all weights equal 1. If relative prices change, weights do not equal 1 and their use avoids nonadditivity and the above nonsensical result. Empirically, they have widespread implications because CVM is now implemented in over 40 countries. Application to actual GDP data shows significant distortions of GDP composition due to nonadditivity of subaggregate CVMs from ignoring relative price changes. Among this paper`s formulas for additive weighted subaggregate CVMs, the one based on Paasche price and Laspeyres quantity indexes is recommended for practical implementation.
|Date of creation:||2011|
|Date of revision:|
|Contact details of provider:|| Postal: NEDA sa Makati Building, 106 Amorsolo St., Legaspi Village, Makati City,|
Web page: http://www.pids.gov.ph/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Fisher,Franklin M. & Shell,Karl, 1998. "Economic Analysis of Production Price Indexes," Cambridge Books, Cambridge University Press, number 9780521556231, June.
- 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.
- Diewert, W Erwin, 1978. "Superlative Index Numbers and Consistency in Aggregation," Econometrica, Econometric Society, vol. 46(4), pages 883-900, July.
- Balk, Bert M., 2004. "Decompositions of Fisher indexes," Economics Letters, Elsevier, vol. 82(1), pages 107-113, January.
- Jesus C. Dumagan, 2010.
"Computing Additive Chained Volume Measures of GDP Subaggregates,"
Macroeconomics Working Papers
23094, East Asian Bureau of Economic Research.
- Dumagan, Jesus C., 2010. "Computing Additive Chained Volume Measures of GDP Subaggregates," Discussion Papers DP 2010-16, Philippine Institute for Development Studies.
- 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.
- Dumagan, Jesus C., 2002. "Comparing the superlative Tornqvist and Fisher ideal indexes," Economics Letters, Elsevier, vol. 76(2), pages 251-258, July.
When requesting a correction, please mention this item's handle: RePEc:phd:dpaper:dp_2011-09. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Aniceto Orbeta)
If references are entirely missing, you can add them using this form.