In the system of national accounts, all flows and stocks are expressed in value, the product of price and volume. The use of values makes it possible to aggregate over a variety of goods and services, and come up with meaningful totals. However, a major concern in economic analyses is to measure economic growth in volume terms between different periods. Volume measures makes it possible to conduct meaningful comparisons over time; how much higher was total production this year compared to last year ? Volume measures makes it possible to analyze real growth, the development in economic activity over time. Thus, it is necessary to distinguish between, in the value changes for economic aggregates, the changes arising solely from changes in price and the remainder which is called changes in volume.
The system of national accounts provides a framework for integrated price and volume measurement and analysis. The scope of price and volume measures in the system of national accounts covers, in addition to transactions in goods and services, items such as taxes and subsidies on products, trade margins, consumption of fixed capital, compensations of employees, and stocks of inventories and produced fixed assets. The accounting framework makes it possible to define and construct price and volume measures for value added, which is the balancing item between output and intermediate consumption in the production account, through a method of double deflation. Value added does not represent any observable flow of goods and services which can be factored into a price and a quantity component directly.
The 93SNA recommends using annual chain-linked Fisher price and volume indices as the preferred price and volume measures for GDP and its components. Alternatively, annual chain-linked Laspeyres price and Paasche volume indices, or Paasche price and Laspeyres volume indices, which in most cases will provide close approximations to the preferred Fisher indices. The recommendations in the 93SNA are so far not followed by more than a few developed countries. Most countries still compile constant price estimates, values measured at prices of some fixed base year, with corresponding Paasche price indices, and changes base every 5 to 10 year.
Price and volume measures for GDP are always obtained by constructing price and volume measures for the components of GDP at a detailed level as possible. That is, from the production side, by obtaining price and volume measures for output, intermediate consumption and value added by industry (including trade margins and non-market output), and taxes less subsidies on products, and from the expenditure side, by obtaining price and volume measures for governments’, households’, and NPISHs’ final consumption expenditure, for capital formation, as well as for imports and exports.
|
RSS