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# National Accounts ASA

Published on: Mar 3, 2016
Published in: Education

#### Transcripts - National Accounts ASA

• 1. National Accounts
• 2. Measuring the Economy • National accounts are the core statistical measure of the economy. • Accounts cover many features of the economy but organizing concept is Gross Domestic Product (GDP)
• 3. Quantity Aggregates • To understand the macroeconomy, we need to measure it. Chief measure of economy is the level of production: GDP • We need to combine the many goods produced or consumed in an economy into one measure. + + + + =?
• 4. All goods sold in an economy share a common unit of measure: the price at which they are sold. Sum up the value of goods Gross Domestic Product (GDP) • “GDP combines in a single figure, and with no double counting, all the output (or production) carried out by all the firms, non-profit institutions, government bodies and households in a given country during a given period, regardless of the type of goods and services produced, provided that the production takes place within the country’s economic territory.” L & B p. 15
• 5. GDP is a measure of production • Value added at production establishment i Value Addedi = Outputsi 6444444444444 4444444444448 47 4 Sales + Change in inventories - raw materials, semi-processed inputs and energy costs . 144444444444444444444444 444444444444444444444443 42 4 Intermediate Consumptionsi • GDP is the sum of VA across establishments. GDP  iValue Addedi +Product Taxes less subsidies
• 6. Economic Concept • Value Added is production at firm level due to the combination of capital equipment and workers. • Value added is not equal to profits because the costs of worker and capital are not deducted.
• 7. GDP is a Gross Concept • One cost of production is depreciation of equipment and structures used for production. • This cost, referred to as consumption of fixed capital, is not subtracted from sales to construct value added. • Net Domestic Product = GDP – Consumption of Fixed Capital
• 8. Production Approach Sub-aggregates • Divide production establishments into sectors usually along the line of – Primary: Natural Resources (Agriculture, Forestry, Fishing, Mining, Quarrying) – Secondary: Goods production (Manufacturing, Construction, Utilities) – Tertiary: Intangibles Production
• 9. Link • Accounts are created by national statistical agencies • UN System of National Accounts is the “internationally agreed standard set of recommendations” used by most countries. • Annual data for many countries available Link at the UN
• 10. Table 035 (GDP) by Economic Activity at Current Price HK\$ Mn Economic Activity 2009 r Agriculture, fishing, mining and quarrying 1,090 Manufacturing 28,227 Electricity, gas and water supply, and waste management 34,961 Construction 50,146 Services 1,436,427 Import/export, wholesale and retail trades Import and export trade 365,880 305,458 Accommodation and food services 48,787 Transportation, storage, postal and courier services 99,048 Transportation and storage Postal and courier services Information and communications 93,936 5,112 46,808 Financing and insurance 235,581 Real estate, professional and business services 173,583 Real estate Professional and business services 86,833 86,749 Public administration, social and personal services 279,453 Ownership of premises 187,286 GDP at basic prices Taxes on products GDP at current market prices 1,550,851 55,967 1,622,322
• 11. Hong Kong: Value Added by Sector 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% Hong Kong Census and Statistics 2006 # 1980 Landlord Services FIRE Transport Trade Construction Utilities Manufacturing Mining Agriculture 0.00%
• 12. How do we measure value-added of non-market goods? • Production of government bodies and nonmarket institutions is measured at cost (sum of labor payments plus capital consumption costs). • Value of housing services of owner-occupied housing valued at imputed rental value, i.e. market rent of similar housing stock. • Value of non-compensated household work valued at zero.
• 13. How do we measure financial services? • Banking industry output includes interest income on loans minus interest payments on deposits (plus fee income). • Insurance industry output is measured as premiums net of indemnity payments (w/ minor adjustments).
• 14. Demand • • If we add up the value added at all stages of production we derive the value to the end user. Sum of Final Demand Aggregates equals Sum of Value Added
• 15. Expenditure Approach • Purchase of Final goods by end users are divided into two categories: 1. Consumption: Household expenditure (durables, nondurables & services); government (nondurables & services) expenditure; nonprofit expenditures 2. Investment: Inventories, Fixed Investment (equipment, structures)
• 16. Reconciliation • Some demand for domestically produced value added comes from abroad, some domestic demand is satisfied by overseas goods. GDP = Consumption + Investment + Exports – Imports Exports – Imports = External Balance = Trade Balance = Net Exports <> 0
• 17. OECD National Accounts Main Economic Aggregates http://stats.oecd.org Dataset: 1. Gross domestic product Country: Korea Measure: National currency, current prices Frequency: Annual Trillions of Won B1_GE: Gross domestic product (expenditure approach) P3_P5: Domestic demand P3: Final consumption expenditure P31S14: Final consumption expenditure of households P31S15: Final consumption expenditure of non-profit institutions 2009 1,065 1,026 746 560 16 P3S13: Final consumption expenditure of general government P5: Gross capital formation P51: Gross fixed capital formation P52_P53: Changes in inventories and acquisitions less disposals of valuables B11: External balance of goods and services P6: Exports of goods and services P7: Imports of goods and services DB1_GE: Statistical discrepancy 170 280 310 -30 39 530 490 -1
• 18. Some Asian Expenditure Shares: 2008 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Household Government Investment PRC Japan Exports Imports Korea Source: United Nations Main Aggregates Database
• 19. Value Added and Income • Production establishments are where income is generated. Funds raised can be paid for labor and finance costs, left over money is profit income. • Sum of domestic value added (GDP) is equal to wage payments plus financial and profit income referred to as “operating surplus and mixed income.”
• 20. GDP Equivalence http://stats.oecd.org/Index.aspx Dataset: 1. Gross domestic product Country Korea Measure Tril. Won Gross Domestic Product B1_GA: Gross domestic product (output) B1G: Gross value added at basic prices D21_D31: Taxes less subsidies on products DB1_GA: Statistical discrepancy B1_GE: Gross domestic product (expenditure) P3_P5: Domestic demand B11: External balance of goods and services DB1_GE: Statistical discrepancy B1_GI: Gross domestic product (income) D1: Compensation of employees B2G_B3G: Gross operating surplus & mixed income D2_D3: Taxes less subsidies on production and imports DB1_GI: Statistical discrepancy 2009 1,065 959 106 .. 1,065 1,026 39 -1 1,065 494 453 119 0
• 21. Table 1.10. Gross Domestic Income by Type of Income [Billions of dollars] Line 2 3 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1 26 Compensation of employees, paid Wage and salary accruals Supplements to wages and salaries Taxes on production and imports Less: Subsidies /1/ Net operating surplus Private enterprises Net interest and miscellaneous payments, domestic Business current transfer payments (net) Proprietors' income with IVA and CCA Rental income of persons with CCA Corporate profits with IVA and CCA, domestic Taxes on corporate income Profits after tax with IVA and CCA Net dividends Undistributed corporate profits withwith IVA and CCA Current surplus of government enterprises /1/ Consumption of fixed capital Private Government Gross domestic income Addendum: Statistical discrepancy CCA: Capital Consumption Adjustment 2010 7980.6 6417.5 1563.1 1054 57.3 3673.5 3689.2 747.6 136.7 1036.4 350.2 1418.2 411.1 1007.1 615.3 391.8 -15.7 1874.9 1540.9 334 14525.7 0.8
• 22. GNI vs. GDI GNI Gross National Income GDI Gross Domestic Income = income earned by = income created within domestic residents. national borders. GNI = GDI +NFI (GNP = GDP+NFI) • Net Factor Income [NFI] is income earned on overseas work or investments minus income generated domestically but paid to foreigners.
• 23. BEA U.S. International Transactions Accounts Data Table 1. U.S. International Transactions Line (Credits; debits -) 12 Income receipts 13 Income receipts on U.S.-owned assets abroad 14 Direct investment receipts 15 Other private receipts 16 U.S. government receipts 17 Compensation of employees 29 Income payments 30 Income payments on foreign-owned assets in the US 31 Direct investment payments 32 Other private payments 33 U.S. government payments 34 Compensation of employees 35 Unilateral current transfers, net 36 U.S. government grants/4/ 37 U.S. government pensions and other transfers 38 Private remittances and other transfers/6/ Net Factor Income US \$ Million 2010 663,240 657,963 432,000 224,469 1,494 5,278 (498,016) (483,504) (151,361) (196,004) (136,139) (14,512) (136,095) (44,717) (10,365) (81,013) 29,129
• 24. Compare Macau and the Philippines GDP or GNI • Macau produces a lot of profits paid to overseas owners of casinos. • Philippines workers earn a lot of income overseas. • Which is larger Philippines’ GDP or Philippines GNI? • Does Macau have greater GDP or GNI?
• 25. NFI/GDP 2009 Chad -42.68% Liberia -20.14% Ireland -16.94% Cambodia -15.64% Angola -13.95% Chile -9.69% Panama -8.97% China: Macao SAR -6.03% Australia -4.65% UN Main Aggregates Russian Federation China, People's Republic of Brazil India United States -3.23% -2.04% -2.04% -0.13% 0.28% China: Hong Kong SAR 3.12% Switzerland 4.15% Haiti 9.62% Bangladesh 11.00% Philippines 14.73% Bermuda 23.62% Lesotho 35.17%
• 26. Using GDP to Measure Economic Performance
• 27. Principle Tool: Growth Rates • For any variable, Xt, that is observed at different points at time t, the simple net growth rate is X t  X t 1 X gt  X t 1 • This means gross growth rate is Xt 1 g  X t 1 X t
• 28. Growth Rates of Products and Ratios Zt X tYt X t Yt Z t  X tYt     (1  gtX )(1  gtY ) Z t 1 X t 1Yt 1 X t 1 Yt 1 Xt Zt  Xt Zt Yt    Yt Z t 1 X t 1 Yt 1 Xt X t 1 Yt  Yt 1 (1  gtX ) (1  gtY )
• 29. Rule of Thumb • The growth rate of a product is approximately equal to the sums of the growth rates of the elements of a product. Zt  X t  Yt  g  g  g Z t X t Y t • The growth rate of a ratio is approximately equal to the difference between the growth rate of the numerator and the denominator. Zt  Xt Yt g  g g Z t X t Y t
• 30. • Measuring stick of value is prices of goods in terms of money, but arbitrary changes in the stock of money arbitrarily change prices/the measure of value over time. • Comparing value across time requires abstracting from those arbitrary changes in value.
• 31. Value vs. Volume • Consider the sales of a hypothetical single good (called widgets) production firms. • Value of sales (call v) is the product of the number or volume of goods solds (call q) and the price of each good (call p) • Growth of value can be decomposed into growth of volume and growth in prices. (1  g )  (1  g )(1  g ) v p q
• 32. Aggregate Growth • Macroeconomic aggregates such as GDP and its sub-totals are the sum of values of sales (or purchases) from different firms. Vt   vi   pi  qi i i • We also decompose the growth of the aggregates into growth in prices (inflation) and growth in volume (output). (1  g )  (1  g )(1  g ) V t P t Q t
• 33. Volume Growth • Calculate growth as if prices are unchanged. 1. Divide goods into K distinct sub-categories. 2. Construct representative market basket of each category of goods, k. 3. Sample goods of type k to find average price of market basket k at time t and at time t-1: k t k t 1 p ,p
• 34. Example: US Non Durables Table 2.4.4. & 2.4.5. Personal Consumption Expenditures by Type of Product & Price Indexes Bureau of Economic Analysis Last Revised on: August 08, 2011 Line 25 Nondurable goods 26 Food and beverages purchased for off-premises consumption 27 Food and nonalcoholic beverages purchased for off-premises consumption (4) 28 Alcoholic beverages purchased for off-premises consumption (5) 29 Food produced and consumed on farms (6) 30 Clothing and footwear 31 Garments 32 Women's and girls' clothing (10) 33 Men's and boys' clothing (11) 34 Children's and infants' clothing (12) 35 Other clothing materials and footwear (13 and 17) 36 Gasoline and other energy goods 37 Motor vehicle fuels, lubricants, and fluids (59) 38 Fuel oil and other fuels (29) 39 Other nondurable goods 40 Pharmaceutical and other medical products (40 and 41) 41 Recreational items (parts of 80, 92, and 93) 42 Household supplies (parts of 32 and 36) 43 Personal care products (part of 118) 44 Tobacco (127) 45 Magazines, newspapers, and stationery (part of 90) Value v 2009 v_k 2010 2009 P^k[2005] 2010 645.3 100.4 0.3 659.4 106.6 0.3 113.948 110.724 89.632 114.267 111.271 104.583 153.7 91.1 13.1 60.3 161.2 95.5 13.7 63.9 97.647 97.835 98.038 103.1 96.743 96.378 97.776 104.15 279.1 20.3 331.4 22.7 106.069 114.129 125.441 133.927 316.8 330.6 132.8 141.4 110.1 114.1 89.9 95.2 87.9 94.4 58.8 64.6 2159.9 2295 1+gV 1.062549 111.241 100.453 106.979 105.085 144.831 109.044 115.239 97.161 106.155 104.081 160.563 109.929
• 35. • Note: Data does not report ptk , ptk1 only reports price indices relative to reference price level for subtype k at a fixed reference year (in this case, 2005). k ptk Pt [ Ref ]  k 100 pRef 4. Convert value of goods k at time t into time t1 prices k Pt 1[ Ref ] ptk1 ptk qtk k vtk  k  vtk  k  k pt 1  ptk1qtk Pt [ Ref ] pt pt
• 36. Notes on Price Indices: New Goods k t p ptk1 don’t • Market baskets used to construct need to stay the same over long-periods. • New goods can be introduced as long as matched goods are compared in every t and t-1 period.
• 37. Notes on Price Indices: Quality • Some categories of goods (computers, cars) observe marked changes in quality over time. • Price growth rates for these components often reflect the price growth for certain characteristics (e.g. MHz,GB HD, etc.). These are referred to as hedonic price indices.
• 38. Table 2.4.4. & 2.4.5. Personal Consumption Expenditures by Type of Product & Price Indexes Bureau of Economic Analysis Last Revised on: August 08, 2011 Line 25 Nondurable goods 26 Food and beverages purchased for off-premises consumption 27 Food and nonalcoholic beverages purchased for off-premises consumption (4) 28 Alcoholic beverages purchased for off-premises consumption (5) 29 Food produced and consumed on farms (6) 30 Clothing and footwear 31 Garments 32 Women's and girls' clothing (10) 33 Men's and boys' clothing (11) 34 Children's and infants' clothing (12) 35 Other clothing materials and footwear (13 and 17) 36 Gasoline and other energy goods 37 Motor vehicle fuels, lubricants, and fluids (59) 38 Fuel oil and other fuels (29) 39 Other nondurable goods 40 Pharmaceutical and other medical products (40 and 41) 41 Recreational items (parts of 80, 92, and 93) 42 Household supplies (parts of 32 and 36) 43 Personal care products (part of 118) 44 Tobacco (127) 45 Magazines, newspapers, and stationery (part of 90) Value v 2009 v_k 2010 2009 P^k[2005] 2010 q_t*p_t-1 645.3 100.4 0.3 659.4 106.6 0.3 113.948 110.724 89.632 114.267 657.5591 111.271 106.076 104.583 0.257113 153.7 91.1 13.1 60.3 161.2 95.5 13.7 63.9 97.647 97.835 98.038 103.1 279.1 20.3 331.4 22.7 106.069 114.129 125.441 280.2215 133.927 19.34433 316.8 132.8 110.1 89.9 87.9 58.8 2159.9 330.6 141.4 114.1 95.2 94.4 64.6 2295 111.241 100.453 106.979 105.085 144.831 109.044 115.239 97.161 106.155 104.081 160.563 109.929 96.743 96.378 97.776 104.15 162.7063 96.94373 13.73671 63.25578 319.1305 146.1909 114.9857 96.11833 85.15067 64.07993
• 39. Volume Growth cont. 5. Sum the value of time t goods in time t-1 prices. k k pt 1 k k Qt [t-1 prices ]   k vt k   k pt 1qt pt 6. Divide by the value of time t-1 goods in t-1 prices. k k Qt [t-1 prices ]  k pt 1qt 1 g   k k Vt 1  k pt 1qt 1 Q t
• 40. Candyland GDP Volume Growth: 2005 2005 P Kitkat M&Ms GDP Volume Growth Q 2004 P Q 8 150 6 135 10 150 4 135
• 41. Candyland GDP Volume Growth: 2005 2005 P Q 2004 P Q Kitkat 8 150 6 135 M&Ms 10 150 4 135 GDP 2700 Volume Growth 111.11 1350 100
• 42. Table 2.4.4. & 2.4.5. Personal Consumption Expenditures by Type of Product & Price Indexes Bureau of Economic Analysis Last Revised on: August 08, 2011 Line 25 Nondurable goods 26 Food and beverages purchased for off-premises consumption 27 Food and nonalcoholic beverages purchased for off-premises consumption (4) 28 Alcoholic beverages purchased for off-premises consumption (5) 29 Food produced and consumed on farms (6) 30 Clothing and footwear 31 Garments 32 Women's and girls' clothing (10) 33 Men's and boys' clothing (11) 34 Children's and infants' clothing (12) 35 Other clothing materials and footwear (13 and 17) 36 Gasoline and other energy goods 37 Motor vehicle fuels, lubricants, and fluids (59) 38 Fuel oil and other fuels (29) 39 Other nondurable goods 40 Pharmaceutical and other medical products (40 and 41) 41 Recreational items (parts of 80, 92, and 93) 42 Household supplies (parts of 32 and 36) 43 Personal care products (part of 118) 44 Tobacco (127) 45 Magazines, newspapers, and stationery (part of 90) Value v 2009 v_k 2010 2009 P^k[2005] 2010 q_t*p_t-1 645.3 100.4 0.3 659.4 106.6 0.3 113.948 110.724 89.632 114.267 657.5591 111.271 106.076 104.583 0.257113 153.7 91.1 13.1 60.3 161.2 95.5 13.7 63.9 97.647 97.835 98.038 103.1 279.1 20.3 331.4 22.7 106.069 114.129 125.441 280.2215 133.927 19.34433 316.8 132.8 110.1 89.9 87.9 58.8 2159.9 330.6 141.4 114.1 95.2 94.4 64.6 2295 111.241 100.453 106.979 105.085 144.831 109.044 115.239 97.161 106.155 104.081 160.563 109.929 96.743 96.378 97.776 104.15 Q[t-1 prices] 1+gQ 162.7063 96.94373 13.73671 63.25578 319.1305 146.1909 114.9857 96.11833 85.15067 64.07993 2225.8 1.030491
• 43. Contribution to Growth • Each sub-component contribution to the growth rate is the product of its importance in expenditure at time t-1 and the size of its own k qk wt 1 gt growth rate • For each component k, this contribution can be calculated as: Cg %  w g 100% k t 1 k qk t 1 t k Pt 1[ Ref ] k vtk  k  vt 1 k k k k pt 1qt  pt 1qt 1 Pt [ Ref ]  100%  100% Vt 1 Vt 1
• 44. Table 2.4.4. & 2.4.5. Personal Consumption Expenditures by Type of Product & Price Indexes Bureau of Economic Analysis Last Revised on: August 08, 2011 Line 25 Nondurable goods 26 Food and beverages purchased for off-premises consumption 27 Food and nonalcoholic beverages purchased for off-premises consumption (4) 28 Alcoholic beverages purchased for off-premises consumption (5) 29 Food produced and consumed on farms (6) 30 Clothing and footwear 31 Garments 32 Women's and girls' clothing (10) 33 Men's and boys' clothing (11) 34 Children's and infants' clothing (12) 35 Other clothing materials and footwear (13 and 17) 36 Gasoline and other energy goods 37 Motor vehicle fuels, lubricants, and fluids (59) 38 Fuel oil and other fuels (29) 39 Other nondurable goods 40 Pharmaceutical and other medical products (40 and 41) 41 Recreational items (parts of 80, 92, and 93) 42 Household supplies (parts of 32 and 36) 43 Personal care products (part of 118) 44 Tobacco (127) 45 Magazines, newspapers, and stationery (part of 90) Value v 2009 v_k 2010 2009 P^k[2005] 645.3 100.4 0.3 659.4 106.6 0.3 113.948 110.724 89.632 153.7 91.1 13.1 60.3 161.2 95.5 13.7 63.9 97.647 97.835 98.038 103.1 279.1 20.3 331.4 22.7 316.8 132.8 110.1 89.9 87.9 58.8 2159.9 330.6 141.4 114.1 95.2 94.4 64.6 2295 2010 q_t*p_t-1 Ck gQ% 114.267 657.5591 0.57% 111.271 106.076 0.26% 104.583 0.257113 0.00% 96.743 96.378 97.776 104.15 162.7063 96.94373 13.73671 63.25578 0.42% 0.27% 0.03% 0.14% 106.069 114.129 125.441 280.2215 133.927 19.34433 0.05% -0.04% 111.241 100.453 106.979 105.085 144.831 109.044 115.239 97.161 106.155 104.081 160.563 109.929 0.11% 0.62% 0.23% 0.29% -0.13% 0.24% Q[t-1 prices] 1+gQ 319.1305 146.1909 114.9857 96.11833 85.15067 64.07993 2225.8 1.030491 3.05%
• 45. Volume Indices • To compare the level of aggregate quantities at different points in time, total up the growth that appears in between periods. gtQ all periods 1. Calculate the growth rate for using the prices from the immediately previous periods to adjust current values. 2. Choose a reference period, ref, preferably in a recent period and set a chained index, CI, equal to 100 in that period CI Q Ref [ Ref ]  100
• 46. Chained Index 3. Define the index recursively in all periods using the equation CI [ Ref ]  (1  g )  CI [ Ref ] Q t Q t Q t 1 The relationship between the levels of the chain volume index at any two points t and t+T is the product of the growth between the two points. CI tQ T [ Ref ]   (1  gtQ 1 )  (1  gtQ 2 )  (1  gtQ 3 )  ....  (1  gtQ T )     Q CI t [ Ref ]
• 47. http://www.bea.gov
• 48. Real Quantities, Chained Prices • For comparison’s sake, quantities are often reported in \$ terms using the quantity index to determine how it stands relative to the reference year. CI tQ [ Ref ] QtChain [ Ref ]  Q  VRef CI Ref [ Ref ]  100 Quantity Index 2003 Quantity Index 2005 Value 2005 Quantity 2003 Chained Dollars 94.232 100 1,953.40 1,840.73
• 49. Nondurable Goods 2000 1500 1000 500 Chained Dollars Current Dollars 20 09 20 07 20 05 20 03 20 01 19 99 19 97 0 19 95 Billion US\$ 2500
• 50. • Some macroeconomic aggregates are difficult to chain link as they are possibly negative including net exports or change in inventories. • Estimate real NX – Calculate chained quantities of exports and imports and subtract imports from exports to calculate real NX. • Estimate real CSX – Calculate chained quantities of GDP and GDP net of CSX. Estimate real CSX with the difference.
• 51. Link
• 52. Implicit Price Deflator • An estimate of the price level is the ratio of the value to the quantity in chained dollars. Implicit GDP price At current market prices Pt Chain [ Ref ]  Vt 100 Chain Qt [ Ref ] In chained (2009) dollars deflator 2009= Year HK\$ million HK\$ million 100 2000 1,317,650 1,168,506 112.8 2001 1,299,218 1,174,317 110.6 2002 1,277,314 1,195,936 106.8 2003 1,234,761 1,231,886 100.2 2004 1,291,923 1,336,185 96.7 2005 1,382,590 1,430,815 96.6 2006 1,475,357 1,531,255 96.3 2007 1,615,574 1,629,092 99.2 2008 1,677,011 1,666,664 100.6 2009r 1,622,322 1,622,322 100.0 2010r 1,743,858 1,735,399 100.5
• 53. Price Growth • The growth rate of prices is defined implicitly. 1 g 1 g  1 g P t Ex. V t Q t 1  gtV 1.062549   1.03111 Q 1  gt 1.030491 • Net aggregate price growth is the weighted average of the price growth of individual components. 1 g k  1 g  k ptk1qtk1 gtP  [   ptk qtk V t Q t  k ptk qtk Qt [t  1]   k k k ptk1qtk ptk1qtk1 ptk1qtk Qt [t  1] ]    k k ptk qtk ptk1qtk qtk  ptk  ptk1  k Qt [t  1]  k k k t 1 t p k t  ptk1  p q Qt [t  1] ptk4444 1442 4431444 1 3 42 wtk1 gtp k
• 54. Consumer Price Index • The CPI is the price of a representative market basket of goods relative to the price of that same basket during a benchmark/base year (multiplied by 100). Cost of Market Basket in year t CPI t  100 Cost of Market Basket in Base year
• 55. 140.0 120.0 100.0 80.0 CPI GDP Deflator 60.0 40.0 20.0 0.0 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 Hong Kong’s History of Prices
• 56. Pt  Pt 1 g %  Inflation Rate  100% Pt 1 P t • CPI coverage is smaller than GDP deflator. • Market basket stays constant unlike PCE deflator so may not reflect what people are actually buying. • CPI can be easily measured comes much more often.
• 57. CPI Department of Census and Statistics CPI (A) CPI (B) CPI © 2010M09 2009M05 2008M01 2006M09 2005M05 2004M01 2002M09 2001M05 2000M01 1998M09 1997M05 1996M01 1994M09 1993M05 1992M01 1990M09 1989M05 1988M01 1986M09 1985M05 1984M01 1982M09 1981M05 1980M01 Index [Oct. 2004-Sep.2005] Hong Kong CPI 140 120 100 80 60 40 20 0
• 58. • Inflation: prices are growing • Disinflation: inflation is slowing down but still positive • Deflation: inflation is negative and prices are actually dropping. Hong Kong CPI Inflation 14 Disinflation 12 10 8 4 Deflation 2 20 08 20 06 20 04 20 02 20 00 19 98 19 96 19 94 19 92 19 90 19 88 -4 19 86 -2 19 84 0 19 82 % 6 -6 http://www.imfstatistics.org/imf/
• 59. Adjusting for Inflation • • • • • We can use price indices to “adjust for inflation” - converting values measured in money into values measured in the prices of some reference year, r. Measured in \$, observed at time t: Nt Price level at time t: Pt Price level in reference year Pr Measure adjusted for inflation – N r\$ t N r\$ t Pr  Nt  Pt
• 60. Housing Price: Hong Kong Island • Compare the price of housing in HK average price of an apartment on HK Island with an area between 100m2 and 160m2 – in September 2009 : HK\$173,762 /m2 – in December 1982: HK\$14,742/m2 • How much did an apartment cost back then when expressed in today’s dollars?
• 61. Housing Price: Hong Kong Island • The Hong Kong CPI (2000=100) was 35.5 in December 1982 and 109.2 in December 2009. • Calculate: Pr 109.2 r\$ Nt  Nt   \$14, 742   \$45,347.2 Pt 35.5 • In real terms, luxury housing in 2009 is almost 4 times as expensive as in 1982!
• 62. GDP per Capita Singapore Average Growth Rate 2001-2010 7.00% 6.00% 5.00% 4.00% % • Population changes over time • To assess income levels over time, we divide by population Link 3.00% GDP per Capita 2.00% GDPt [Chain]  Population 1.00% 0.00% GDP Grow th GDP per Capita
• 63. Quarterly Data • Data on national aggregates is usually calculated quarterly, at three month intervals. Index quarters by tq. Volume quarter-on-quarter growth rates can be defined 1 g  Q tq Qtq [tq  1] Vtq 1  p   p k k k tq 1 k tq 1 q k tq k  qtq 1 • Quarterly growth rates are often reported at annual rates. g [ AR]%  1  g   Q tq  Q 4 tq  1 100%  
• 64. g Net Growth Rate Q t • The net growth rate is conceptually equivalent to a weighted average of growth rates of component parts. g Q t    k k ptk1qtk ptk1qtk1 k k t 1 t 1    k ptk1qtk1 k ptk1qtk1   k ptk1  qtk  qtk1  Vt 1 qtk  qtk1   p q k qk  k   k wt 1 gt k Vt 1 qt 1 144244 3144424443 wtk1 gtq k • Growth rates are usually written in % terms. g %  g 100% X t X t
• 65. Quarterly Series • Quarterly volume indexes created by choosing a reference quarter as 100 then chaining CI [ Refq]  (1  g )  CI Q tq Q tq Q tq 1 • Chained quantity estimates are shown as relative to the reference year so as Chain tq Q [ Ref ]  Q tq CI [ Ref ] 100 VRef [ Refq]
• 66. Fisher Ideal Volume Growth 4. Convert value of goods k at time t into time t-1 prices ptk ptk1qtk1 k vtk1  k  pt  ptk qtk1 pt 1 ptk1 5. Sum the value of time t goods in time t-1 prices. ptk Qt 1[t prices]   k vtk1 k   k ptk qtk1 pt 1 6. Use weighted geometric average of two growth rates. Vt Qt [t-1 prices] 1  g [ FI ]    Qt 1[t prices] Vt 1 Q t     pq  p k k ptk qtk k k t t 1 k k ptk1qtk k k t 1 t 1 q
• 67. Constant Price Aggregates • An easier way to compare quantity aggregates is to measure the quantities of all goods in terms of the prices prevailing in a single base year. Qt [ Ref ]   k vtk  k PRef [ Ref ] Pt k [ Ref ]   k vtk  k pRef ptk   k ptk qtk  k pRef ptk k   k pRef qtk • Not recommended anymore because growth rates may differ greatly depending on which base year is used.
• 68. Contribution to Growth Expenditures • Sources of Demand is often the focus of attention. • Often important to calculate contribution to GDP growth of k = PCE,GCE,GFCF,CSX,NX. k Pt 1[ Ref ] k v  k  vt 1 Pt [ Ref ] 100% Vt 1 k t
• 69. • Problem: CSX and NX are often negative. • Solution: CSX – Calculate the contribution of Gross Capital Formation to GDP growth; – Calculate the contribution of Gross Fixed Capital Formation to GDP growth – CSX is difference between GCF and GFCF so the difference between GCF contribution to growth and GFCF contribution is CSX constribution.
• 70. Example: Using UN NA data to find contribution of CSX to GDP growth GDP 2008 14369.4 Gross Capital Formation Gross Fixed Capital Formation Changes in Inventories GDP by Expenditure, current prices - National currency Billions\$ 2008 2009 2541.4 1926.3 2576.0 2068.2 -34.6 -142.0 GDP by Expenditure, at constant 2005 prices - National currency Billions\$ 2008 2009 2340.1 1812.1 2368.6 1934.1 -28.5 -122.0 1. Calculate Implicit Price Deflators Pt [ Ref ]  k vtk k t q [ Ref ] Gross Capital Formation 100 Gross Fixed Capital Formation Changes in Inventories Implicit Price Levels 2008 2009 108.6 106.3 108.8 106.9 121.4 116.4
• 71. 2. Calculate the contribution of Gross Capital Formation to GDP growth k Pt 1[ Ref ] k 108.6 vtk  k  vt 1 1926.3   2541.4 Pt [ Ref ] 106.3 100%  100%  3.99% Vt 1 14369.4 3. Calculate the contribution of Gross Fixed Capital Formation to GDP growth 108.8 2068.2   2576.0 106.9  100%  3.29% 14369.4 4. Contribution of CSX to GDP growth 3.99%  3.29%  .70%