DP11594 Is the output growth rate in NIPA a welfare measure?
|Publication Date:||November 2016|
|Keyword(s):||Embodied technical change, Fisher-Shell index, Growth measurement, NIPA, Quantity indexes|
|JEL(s):||C43, D91, O41, O47|
|Programme Areas:||Macroeconomics and Growth|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=11594|
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.