1. PRICE AND VOLUME MEASURES NATIONAL ACCOUNTS STATISTICS WORKSHOP PRICE AND VOLUME MEASURES Workshop on national accounts for Asian member countries of the organization of Islamic Conference in Ankara, Turkey 1-2 December 2008 by Devi Manraj IMF Regional statistics advisor devimanraj@gmail.com

2. 2 PRICE AND VOLUME MEASURES u National accounts estimates and tables are presented either at current or constant prices u “Constant price” should strictly be confined to volume measures u “Real” is only used for income flows (at constant purchasing power) e.g. “real national income” u It is preferable to avoid the “real term” with reference to GDP. The preferred term is “GDP at constant prices”

3. 3 Why do we need price and volume measures? u For goods and services this means that when the nominal value of goods and services transacted changes  How much is due to changes in quantity or quality( or volume)?  How much is due to changes in the prices of the goods or services? u Volume = quantity * quality, where quantity measurement is only meaningful for homogeneous goods

4. 4 Main issues of price and volume measures u What is the relationship between the current price value and the price and volume measures for NA components? u How to aggregate them? u How to obtain price and volume measures in practice?

5. 5 SNA recommendation for GDP and other aggregates measures u State of the art  Ideal method: annual chained Fischer price and volume indices for GDP and its components  Second best: annually chained Laspeyres volume indices and Paasche price indices OR annually chained Paasche volume indices and Laspeyres price indices

6. 6 Price and volume measurements of GDP u Price and volume measurements for GDP are obtained through price and volume measures of its components u From the production approach:  For value added by industry plus  for taxes less subsidies on products

7. 7 Price and volume measurements u From the expenditure approach:  For government final consumption expenditure plus  For households final consumption expenditure plus  For NPISH’s final consumption expenditure plus  For capital formation plus  For exports less  For imports

8. 8 Quantity, price and value u Quantity: unit for measuring amount of a good /service. Quantities are additive only at he single product level u Price: value of one unit of a good /service of same quality u An average of prices of different goods/services should not be used to measure price changes over time

9. 9 Quantity, price and value u Value: value = price * quantity. Value is additive across different products – At single level: v it = p it * q it – At an aggregate level: V it =Σ i v it =Σ i (p it * q it )

10. 10 Volume versus quality u Volume is obtained when prices of a previous period are used for valuation u Changes in volume arise due to changes in “product-mix” or quality and quantity (see next slides for details) u Change in product mix reflect change in quality and not quantity

11. 11 Volume versus quality u Price indices based on unit values or average value of units that are not homogeneous are affected by  changes in the mix of the items  changes in their prices u Unit value indices do not provide good measures of average price changes over time

12. 12 Relationship between value, volume and price indices u Current value index divide by value index at constant price = implicit price deflator i.e. u V t *100/V 0 = Σ i (p i,t * q i,t )*100/Σ i (p i,0 * q i,0 ) which is equivalent to u Value index = Laspeyres volume index * Paasche price index/100 u 180 = 120 * 150/100 u This shows that the volume and price effects of value change are multiplicative

13. 13 Construction of a “family” of producer price indices (Explicit deflators) u Consumer Price Index u A Producer Price Index for Agriculture u A Producer Price Index for Manufacturing u A Construction Price Index or index of prices of building materials u A Retail price index u A Wage rate index u Export and Import price indices