DP12300 Measuring Aggregate Economic Activity

Author(s): Georg Duernecker, Berthold Herrendorf, Akos Valentinyi
Publication Date: September 2017
Date Revised: May 2020
Keyword(s): Fisher Index, Productivity Growth Slowdown, Weitzman's NDP
JEL(s): O41, O47, O51
Programme Areas: Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12300

Popular ways of measuring aggregate economic activity include the Fisher index of GDP, Weitzman's NDP in consumption units, and GDP in consumption units. We show that it matters which measure is used, because their growth rates differed considerably in the postwar U.S. We compare the properties of the measures in the two-sector growth model and show that the Fisher index of GDP is the preferable measure to use. It has a welfare interpretation under mild restrictions that allow the growth model to match the observed secular decline in the relative price of investment and the observed productivity growth slowdown.