From: Survey of Current Business (Online) November 2012, Bureau of Economic Analysis, Volume 92 Number 11:
The data and methods used to prepare current-dollar and real estimates of GDP as well as current-dollar estimates of gross domestic income, reflecting the 2012 annual NIPA revision.
The Bureau of Economic Analysis (BEA) has recently improved its estimates of current-dollar gross domestic product (GDP), current-dollar gross domestic income (GDI), and real GDP as part of the 2012 annual revision of the national income and product accounts (NIPAs). The sources of data and the methodologies that are now used to prepare the NIPA estimates are summarized in this report...
Estimates of real GDP
BEA uses three methods to estimate real GDP: the deflation method, the quantity extrapolation method, and the direct valuation method. These methods and the source data that are used for estimation are listed in table 2.
The deflation method is used for most components of GDP. A quantity index is derived by dividing the current-dollar index by an appropriate price index that has the base year—currently 2005—equal to 100. The result is then multiplied by 100.
The quantity extrapolation method uses quantity indexes that are obtained by using a quantity indicator to extrapolate from the base-year value of 100.
The direct valuation method uses quantity indexes that are obtained by multiplying the base-year price by actual quantity data for the index period. The result is then expressed as an index with the base year equal to 100.
For most components of GDP, they divide the actual (so-called nominal) number by a price index. They divide the price change out of the number in order to get a quantity-of-output number. They start with the actual-price output number, divide by a price number, and take the result to be "real" output.
I'm not saying it is wrong to do this. I'm just pointing out that they do it. I'm sure that for most components of GDP, there is no other practical way to do it. Okay?
So now, here's what Nick Rowe said:
Places like Statistics Canada measure *both* NGDP and RGDP to calculate P. P is the "derived" value, in practice.
But according to the NIPA PDF, they do not do it the way Nick Rowe says. For most components of GDP, according to NIPA, RGDP is the derived value. Not P.
Nice to know.