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Is the GDP growth rate in NIPA a welfare measure?

  • Jorge Duran

    (Université Libre de Bruxelles)

  • Omar Licandro

    (IAE-CSIC and Barcelona GSE)

The permanent decline of equipment prices relative to nondurable consumption prices rendered fixed-base quantity indexes obsolete, because of the well-known substitution bias. National Income and Product Accounts (NIPA) responded by switching to a flexible-base quantity index to measure GDP growth. We argue this is a welfare measure of output growth. In a two-sector endogenous growth model, we use the Bellman equation to explicitly represent preferences on consumption and investment, we apply a Fisher-Shell true quantity index to the this utility representation and show it is equal to the Divisia index, well approximated by the flexible-base quantity index used by NIPA.

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File URL: https://economicdynamics.org/meetpapers/2013/paper_191.pdf
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Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 191.

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Date of creation: 2013
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Handle: RePEc:red:sed013:191
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
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  1. Raouf BOUCEKKINE & Fernando DEL RIO & Omar LICANDRO, 2002. "Embodied technological change learning-by-doing and the productivity slowdown," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2002028, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  2. Fisher,Franklin M. & Shell,Karl, 1998. "Economic Analysis of Production Price Indexes," Cambridge Books, Cambridge University Press, number 9780521556231, june. pag.
  3. Omar Licandro & Javier Ruiz-Castillo & Jorge Duran, 2002. "The Measurement of Growth under Embodied Technical Change," Recherches économiques de Louvain, De Boeck Université, vol. 68(1), pages 7-19.
  4. Matthijs van Veelen & Roy van der Weide, 2008. "A Note on Different Approaches to Index Number Theory," American Economic Review, American Economic Association, vol. 98(4), pages 1722-30, September.
  5. repec:ucp:bknber:9780226304557 is not listed on IDEAS
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