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Title: Is the output growth rate in NIPA a welfare measure?

Author(s): Omar Licandro

Publication Date: November 2016

Keyword(s): Embodied technical change, Fisher-Shell index, Growth measurement, NIPA and Quantity indexes

Programme Area(s): Macroeconomics and Growth

Abstract: National Income and Product Accounts (NIPA) measure real output growth by means of a Fisher ideal chain index. Bridging modern macroeconomics and the economic theory of index numbers, this paper shows that output growth as measured by NIPA is welfare based. In a dynamic general equilibrium model with general recursive preferences and technology, welfare depends on present and future consumption. Indeed, the associated Bellman equation provides a representation of preferences in the domain of current consumption and current investment. Applying standard index number theory to this representation of preferences shows that the Fisher-Shell true quantity index is equal to the Divisia index, in turn well approximated by the Fisher ideal index used in NIPA.

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Bibliographic Reference

Licandro, O. 2016. 'Is the output growth rate in NIPA a welfare measure?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11594