Is the GDP growth rate in NIPA a welfare measure?

Jorge Durán and Omar Licandro ()

No 191, 2013 Meeting Papers from Society for Economic Dynamics

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.

Date: 2013
New Economics Papers: this item is included in nep-dge, nep-mac and nep-upt
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Working Paper: Is the GDP Growth Rate in NIPA a Welfare Measure? (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed013:191

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