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Is the GDP growth rate in NIPA a welfare measure?

Author

Listed:
  • Jorge Duran

    (Université Libre de Bruxelles)

  • Omar Licandro

    (IAE-CSIC and Barcelona GSE)

Abstract

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.

Suggested Citation

  • Jorge Duran & Omar Licandro, 2013. "Is the GDP growth rate in NIPA a welfare measure?," 2013 Meeting Papers 191, Society for Economic Dynamics.
    • Handle: RePEc:red:sed013:191
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    References listed on IDEAS

    as
    1. Raouf Boucekkine & Fernando Del Río & Omar Licandro, 2003. "Embodied Technological Change, Learning‐by‐doing and the Productivity Slowdown," Scandinavian Journal of Economics, Wiley Blackwell, vol. 105(1), pages 87-98, March.
    2. repec:ucp:bknber:9780226304557 is not listed on IDEAS
    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. Fisher,Franklin M. & Shell,Karl, 1998. "Economic Analysis of Production Price Indexes," Cambridge Books, Cambridge University Press, number 9780521556231, December.
    5. Hulten, Charles R, 1992. "Growth Accounting When Technical Change Is Embodied in Capital," American Economic Review, American Economic Association, vol. 82(4), pages 964-980, September.
    6. Robert J. Gordon, 1990. "The Measurement of Durable Goods Prices," NBER Books, National Bureau of Economic Research, Inc, number gord90-1, June.
    7. 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 1722-1730, September.
    8. Charles R. Hulten, 1992. "Growth Accounting When Technical Change is Embodied in Capital," NBER Working Papers 3971, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Marcus Cobb, 2014. "GDP Forecasting Bias due to Aggregation Inaccuracy in a Chain- Linking Framework," Working Papers Central Bank of Chile 721, Central Bank of Chile.

    More about this item

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • 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

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