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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.

Suggested Citation

  • Dumagan, Jesus C., 2009. "Comparing GDP in Constant and in Chained Prices: Some New Results," Discussion Papers DP 2009-08, Philippine Institute for Development Studies.
    • Handle: RePEc:phd:dpaper:dp_2009-08
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    References listed on IDEAS

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    1. repec:bla:revinw:v:48:y:2002:i:2:p:217-33 is not listed on IDEAS
    2. 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.
    3. 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.
    4. Diewert, W Erwin, 1978. "Superlative Index Numbers and Consistency in Aggregation," Econometrica, Econometric Society, vol. 46(4), pages 883-900, July.
    5. Balk, Bert M., 2004. "Decompositions of Fisher indexes," Economics Letters, Elsevier, vol. 82(1), pages 107-113, January.
    6. Karl Whelan, 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 217-233, June.
    7. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
    8. Dumagan, Jesus C., 2002. "Comparing the superlative Tornqvist and Fisher ideal indexes," Economics Letters, Elsevier, vol. 76(2), pages 251-258, July.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    real GDP; constant prices; chained prices; Fisher index; additivity;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation

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