QUANTITY AND PRICE INDEXES FOR CONSTRUCTION

Construction has traditionally constituted one of the problem areas in the preparation of industry price and quantity statistm with in the system of national accounts of most countries. The difficulty stems from what is considered to be the unique character of construction projects. This has unnecessarily impeded the calculation of output price indexes and has resulted in the use of various input-based prices as proxies for output prices. One of the objectives of the development of the system of construction price statistics described in this paper is to permit deflation of the outputs of construction industries in order to produce industry output data in constant prices in a manner consistent with measures for the rest of the economy. This is a more promising approach to improving constant price industry and expenditure measures within the SNA framework than attempting such improvements through the collection of a vast array of quantity data. Construction industries sell specified configurations of materials-in-place which are, to borrow the jargon of other fields, sub-assemblies of some total system. As in other areas of industrial pricing, some of these products are simple and some are complex. Trade contractors sell these sub-assemblies or commodities mainly to an owner-builder or to a general contractor who, in turn, resells the trade contractors’ commodities along with whatever sub-assemblies the general contractor has produced. These sub-assemblies, when combined with, for example, the relevant outputs (or sub-assemblies) of manufacturers, the design services of service industries and the purchasers’ own contributions, yield the wide variety of plant and structures which constitute the various classes of gross fixed capital formation, which are not typically solely the outputs of the construction industries. The resulting contractors’ selling price indexes will provide deflators for the whole range of outputs of the various construction industries. These will become part of the system of industry selling price indexes from which relevant indexes for the various goods and services can be selected and combined with appropriate weights to yield arrays of deflators for the highly complex capital expenditures of business, institutions and government. Ultimately this integrated system of construction industry statistics will permit the preparation of gross output and value added measures, in both current and constant prices, to be calculated for the construction industries as an integral part of the Canadian System of National Accounts, as well as provide a key element for improving the deflation of fixed capital formation.     

THE MEASUREMENT OF POVERTY WITH GEOGRAPHICAL AND INTERTEMPORAL PRICE DISPERSION: EVIDENCE FROM RWANDA

It is not known to what extent welfare measures result from seasonal and geographical price differences rather than from differences in living standards across households. Using data from Rwanda in 1983, we show that the change in mean living standard indicators caused by local and seasonal price deflation is moderately significant at every quarter. By contrast, the differences in poverty measures caused by this deflation can be considerable, for chronic as well as transient or seasonal poverty indicators. Thus, poverty monitoring and anti-poverty targeting can be badly affected by inaccurate deflation of living standard data. Moreover, when measuring seasonal poverty, the deflation based on regional prices instead of local prices only partially corrects for spatial price dispersion. Using annual local prices instead of quarterly local prices only yields a partial deflation, which distorts the measure of poverty fluctuations across seasons and biases estimates of annual and chronic poverty.     

IMPLEMENTING THE REVISED SNA: RECOMMENDATIONS ON PRICE AND VOLUME MEASURES

The 1993 SNA recommends chain volume indices over traditional fixed base indices as the principal measure of year-to-year volume movements in economic aggregates. Recognising, however, that "additive consistency" is important to many users, the SNA recommends that countries continue to compile traditional constant price data alongside the chain indices. In addition, the new international guidelines suggest a supply-use table framework for deriving indices. This paper considers how these demands can be met in practice. Particular attention is paid to deriving chain indices for industry value added within the same framework as that used for final demand components.     

ASSESSING THE QUALITY ERROR IN OUTPUT MEASURES: THE CASE OF REFRIGERATORS*

This paper computes new indexes of output for refrigerators, using hedonic methods to adjust for quality change. The hedonic technique is applied in a new way (it is used to make quality adjustments to prices before they are used in the index), and the results are compared with those from methods used in previous hedonic investigations. There are three major findings. (1) Overall (1960–1972), our hedonic deflated output series rise more rapidly than conventional measures, because the price indexes used for deflation rise more slowly. (2) The output measures fluctuate more than do output measures produced by conventional methods, because adding hedonic quality adjustments to WPI indexes moves them up in some years and down in others, and the resulting adjustments to the output series were positively correlated with changes in output. (3) Applying methods used in previous studies produces larger adjustments to the published indexes, suggesting that some of the differences noted in previous studies between hedonic indexes and official published indexes are related to computational methods, not to quality adjustment.     

The Multi-Sectoral Thirlwall’s Law: evidence from 14 developed European countries using product-level data

The paper reports estimates of import and export functions for five technological sectors in 14 developed European countries. These functions have never before been estimated for developed countries adopting a technological classification of sectors. The paper compares estimates of income elasticities found using vector error-correction models employing aggregate deflators, with estimates found using cross-product panels employing product-specific quality-adjusted price indexes recently calculated by Feenstra and Romalis. The results indicate that the income elasticities of imports and exports are higher for medium- and high-tech manufactures, which suggests the importance of moving from the production of simple goods to the production of goods with high technological content. The estimates also suggest that the Multi-Sectoral Thirlwall’s Law holds for the countries analysed, while comparing the estimates revealed that cross-product panels with quality-adjusted prices generate considerably more robust results. The investigation reveals that using a more recent time period generates estimates of income elasticities of demand for primary products and resource-based manufactures that tend to be higher than the estimates found by studies that have used longer time periods, while the opposite holds for low-, medium-, and high-tech manufactures.     

Path dependence of the general price level: A value theoretic analysis

The paper examines path dependence of price indexes, a problem that has become acute after international adoption of chain indexes for price and volume changes in the SNA93. Path dependence is an old issue of index numbers, and has been in the way of using chain indexes ever since their invention. The paper accepts chaining at its start, and tries to develop a sound deflation procedure from there. In this analysis path dependence is less an issue of appropriate formalization of a given concept, the traditional approach in index number theory, but rather a problem of developing an interpretation to a given and now worldwide recommended statistical practice. The key issue is found in the fact that money is not only the standard means of payment, concerning central banks, but also the standard of value in an economy, a feature that bears directly on the compilation of price indexes and national accounts. As a result, a chained weighted index is shown to be path independent, if it is interpreted as a change not of prices, but of the unit of account in which prices are expressed.     

NEW ESTIMATES OF GROSS NATIONAL PRODUCT FOR THE UNITED KINGDOM 1830–1914

This paper presents a new annual series for United Kingdom gross national product, at current and constant prices, calculated from the expenditure side. These results differ significantly from previous estimates in that they go back to the beginning of the railway age on an annual basis and also in that the constant price estimates involve a detailed deflation of the main components of expenditure on consumption and capital formation. The implications of the new results are summarised, with particular reference to rates of growth and relative price changes, and an appendix describes the sources of the estimates.     

Alternative Land-Price Indexes for Commercial Properties in Tokyo

The System of National Accounts (SNA) requires separate estimates for the land and structure components of a commercial property. Using transactions data for the sales of office buildings in Tokyo, a hedonic regression model (the “builder’s model”) was estimated and this model generated an overall property price index as well as subindexes for the land and structure components of the office buildings. The builder’s model was also estimated using appraisal data on office building real estate investment trusts (REITs) for Tokyo. These hedonic regression models also generated estimates for net depreciation rates, which can be compared. Finally, the Japanese government constructs annual official land prices for commercial properties based on appraised values. The paper compares these official land prices with the land prices generated by the hedonic regression models based on transactions data and on REIT data. The results reveal that commercial property indexes based on appraisal and assessment prices lag behind the indexes based on transaction prices.     

THE INTEGRATION OF A SYSTEM OF PRICE AND QUANTITY STATISTICS WITH DATA ON RELATED VARIABLES

This paper has two main points. First, the usefulness of the industry detail called for in the SNA would be increased if it were altered to facilitate the construction of price and quantity aggregates classified by stage-of-process sectors. Second, the price and quantity data so arranged should be augmented by data on behaviorally related variables classified the same way. The feasibility of the stage-of-process approach is demonstrated by a table showing the high degree to which the U.S. input-output table for 1967 can be triangularized. The analytical usefulness of the approach is demonstrated through analysis of changes in prices, output, unfilled orders and finished goods inventories for primary and for finished goods manufacturers.     

SAMs, THE SNA AND NATIONAL ACCOUNTING CAPABILITIES

In this paper, the author argues for radical revision of the 1968 SNA in the direction of simplification, in order to give greater emphasis to essential concepts, and for flexibility, so that each country can develop its own SAMs within a general conceptual framework as a response to domestic priorities and issues. It is suggested that general equilibrium models should replace input-output as the central conceptualisation of the system, leading to an equal emphasis on prices and quantities, and an equal concern within the SNA for income distribution, factor markets and production structure, set in the context of external flows and balances.     

NEW ESTIMATES OF SWEDISH HISTORICAL GDP SINCE THE BEGINNING OF THE NINETEENTH CENTURY*

The first Swedish historical national accounts were compiled in the 1930s, and that pioneering work formed the main basis for later estimates until now. In this paper, an attempt to construct new historical accounts for 1800–1980 is presented. First, the methodology is discussed, particularly concerning series in constant prices adapted for analysis of growth and structural changes. In principle Paasche deflators should be used, but for such a long period they are inadequate due to the huge changes in the goods composition of production as well as of consumption and investment. Instead, a division of the whole period into shorter subperiods is made and within these, Paasche deflators are applied. Then the series for the deflation periods can be linked in order to arrive at longer series. Second, some findings of the work (still in progress) are reported. The new series show a slower growth rate in the second half of the nineteenth century than the earlier ones, and Sweden can internationally no longer be seen as the country where this period's economic miracle took place. Instead, concerning rate of growth of GDP per capita as well as its level, Sweden seems to have been a middle-way country compared to other European countries. In the first half of the 20th century, on the other hand, the growth rate was high in an international comparison. The Swedish sectoral changes followed a general pattern with decreasing agricultural and increasing industrial shares. The service share was not unusually high in the nineteenth century. Within this service production a very distinct pattern of structural change is evident. Finally, a plea is made for a regional breakdown of the national GDP data in order to obtain a better understanding of the economic growth and modernization process.     

REPLY: THE CONCEPT OF CAPITAL

Edward Denison and I agree that the correct theoretical concept of capital is to consider two capital goods equivalent if they generate the same real net revenue, defined as gross revenue minus variable operating costs measured at a fixed set of output and input prices. Although I showed in my book that the correct concept could be fully implemented for commercial aircraft and electric generating equipment, for other products I was able only partially to take operating costs into account. As a result, both Denison and I agree that my radical revision to the official capital goods deflators does not go far enough and is biased toward understating improvements in quality. Our disagreement comes down to research strategy: I believe that I have progressed partway toward the ultimate goal of implementing the correct concept, while he views such a full implementation as infeasible. As a result, he advocates a return to the traditional criterion of base-period production cost, even though this yields price deflators that ignore improvements in performance (as for computers) and improvements in operating efficiency (as for successive generations of jet aircraft) made possible by technological advances that reduct the cost of production.     

COMMODITY BALANCES AND NATIONAL ACCOUNTS: A SAM PERSPECTIVE

This paper is concerned with the treatment of commodity and activity balances in a national accounts context. It makes use of a general method for reducing the size of a social accounting matrix (SAM) by apportioning the elements of one or more accounts to the rest. The national accounts are looked at in terms of their usefulness for policy analysis, not least analysis of the impact of price changes. The SNA convention of separately distinguishing activities and commodities is endorsed. However, in contrast to the SNA, it is argued that for analytic purposes commodity transactions should be recorded at market prices, with a separate account for each of the markets for a given commodity in which a distinct price prevails. The SNA SAM is shown to be a reduced form of the SAM resulting from this recommended treatment of commodity transactions, while a further round of reductions (apportionments) yields SAMs which are familiar from input-output analysis, in which activities and commodities are not separately distinguished. It is argued that no special effort would be required to produce SAMs in which commodity balances are recorded at market prices as recommended here (the necessary data are also required to produce the conventional SNA tableaux), and that all reduced form versions of such SAMs, including the SNA, are inferior as a basis for the analysis of price effects on the structure of production.     

Decomposing the determinants of road traffic demand

This study presents a decomposition of the basic fundamental determinants of road traffic and fuel demand. A general framework is proposed as a means of analysing the impacts of changes in prices and income on the demand for fuel and traffic volume. The objective is to provide a general basis for comparing different road traffic elasticity estimates and for understanding how a variety of different factors work together to create overall road traffic and fuel demand responses. The study emphasizes relationships between different price and income elasticity measures and uses estimates from the literature to evaluate the main determinants of demand including some previously unobserved effects.     

AN ALTERNATIVE TO DOUBLE DEFLATION FOR MEASURING REAL INDUSTRY VALUE-ADDED

This article proposes a new method to compute the real value-added of industries which would substitute for the traditional double deflation method. The new method consists of deflating industries' direct and indirect contributions to final demand deliveries (their value-added by commodity) by the respective final demand commodity prices. The article shows that the new industry real value-added measures have better statistical and analytical properties than those obtained by the double deflation method.     

Computer Price Indices and International Growth and Productivity Comparisons

Methodologies to derive price indices for information and communication technology (ICT) products vary between national statistical offices. This may lead to significant differences in measured price changes for these products and there has been concern about the international comparability of volume growth rates of GDP between several OECD countries. This article discusses the possible consequences for measures of economic growth of replacing one set of price indices by another one in the framework of national accounts. It is argued that the issue of ICT deflators cannot be dealt with in isolation and several other factors have to be taken into account, in particular whether ICT products are final or intermediate products, whether they are imported or domestically produced and whether national accounts are set up with fixed or chain weighted index numbers. Overall, results point to modest effects at the aggregate GDP level but may be more significant when it comes to component measures such as volume growth of investment, or of output in a particular industry.     

Offshoring,Sourcing Substitution Bias,and the Measurement of Growth in U.S. Gross Domestic Product and Productivity

The decade before the financial crisis of 2008 was a time of large changes in sourcing patterns for manufactured goods, particularly after China's entry into the WTO in 2001. Sourcing substitution reduced the prices paid by wholesale level buyers of these goods, but these price reductions were mostly not captured in the U.S. import price indexes and the U.S. GDP deflator. To find plausible values for sourcing bias we first use data on changes in sourcing patterns over 1997–2007 to predict the effect of the reported price discount from the new emerging market suppliers. Next, we compare adjusted import price indexes for products used for household consumption with consumer price indexes. In the GDP deflator for apparel imports, sourcing bias is found to average 0.6 percent per year, and for durable goods it averages 1 percent per year. During the decade of rapidly changing sourcing patterns, a tenth of the reported speedup in multifactor productivity growth of the U.S. private business sector may have come from sourcing bias in the deflators for imports.     

PRICE ANALYSIS AND A SYSTEM OF PRICE STATISTICS

For some considerable time the interest in price statistics has mainly been focused on their use as "intermediate goods". The requirements of a system of price index numbers which have to be established in this connection are largely in the field of statistical coordination (integration of statistics on quantities, values and prices).
Recently the inflation problem has given rise to an increased interest in price statistics as "final goods". A meaningful analysis of inflation will devote attention to the relation between input prices and output prices. In this article several versions of an analysis of prices of final demand categories based on an ordinary Leontief input-output scheme are presented and the needs for price statistics are discussed. In fact a self-contained system of price statistics emerges from the price analysis.
There is a difference in the nature of the price index numbers required in compiling input-output tables in constant prices (Paasche) and that in the case of price analysis (Laspeyres). However the need for price observation runs largely parallel because in both cases the same detailed information on price developments will probably be used.
Price analysis gives the possibility of a step-by-step approach in building up a system of price index numbers.     

Energy import costs in a flexible input-output price model

A fundamental assumption of the input-output (IO) model is a fixed relationship between interindustry flows. In the price version of the model, the assumption of fixed-coefficients prevents the optimal mix of inputs being adjusted when relative prices change. The aim of this paper is to evaluate the role of energy import prices in the IO price model without the usual non-substitution technology inherent to the input-output structure. The analysis includes alternative substitution possibilities for the elements that comprise the sectoral costs, which are empirically implemented from an IO dataset. The various substitution scenarios are defined by three different cost structures: the Leontief, Cobb-Douglas and Constant Elasticity of Substitution (CES) functions. The empirical application to the Catalan economy illustrates the relevance of the flexibility option used for explaining the quantitative influence of energy import prices on domestic prices. Adapting the traditional input-output model to include factor substitution makes it possible to overcome the rigidity in transmitting price impacts, and illustrates a range of possible effects.