Added Title
DLSU-AKI Working Paper Series 2016-36
College
School of Economics
Department/Unit
Economics
Document Type
Working Paper
Publication Date
2016
Abstract
Existing procedures for GDP in chained or in constant prices ignore relative prices – ratios of industry GDP deflators to the economy’s GDP deflator – and, consequently, yield economically misleading results by understating (overstating) level contributions of industries with above (below) average relative prices, at the same time understating (overstating) growth contributions of industries with rising (falling) relative prices. These are illustrated by US GDP in chained prices and Philippine GDP in constant prices. However, the above misleading results could be mitigated by this paper’s general formulas for level and growth contributions applied to the same GDP. While allowing for differences and changes in relative prices, these general formulas encompass existing formulas as special cases of constant relative prices. In principle, relative prices convert real GDP of industries to the same (i.e., homogeneous) units so that they can be added to equal (i.e., additive) aggregate real GDP. Without relative prices – and, therefore, no homogeneity and no additivity – industry contributions to the level and growth of aggregate real GDP are questionable.
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Recommended Citation
Dumagan, J. C. (2016). Effects of Relative Prices on Contributions to the Level and Growth of Real GDP. Retrieved from https://animorepository.dlsu.edu.ph/res_aki/71
Disciplines
Growth and Development
Keywords
Real GDP; relative prices; additivity; index numbers
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