tag:blogger.com,1999:blog-2098432983500045934.post4544855565597852129..comments2024-03-12T22:19:32.339-04:00Comments on The New Arthurian Economics: "Updated Summary of NIPA Methodologies" versus Nick RoweThe Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-2098432983500045934.post-86636870383371573592012-11-23T09:42:04.104-05:002012-11-23T09:42:04.104-05:00An example in a Reddit comment offers a different ...An example in a Reddit comment offers a different perspective:<br /><br />http://www.reddit.com/r/economy/comments/13lw8b/headline_versus_core_inflation_please_be_sure_you/c754x33<br /><br />The Arthurianhttps://www.blogger.com/profile/16501331051089400601noreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-699961262767697592012-11-21T19:13:18.073-05:002012-11-21T19:13:18.073-05:00Wow, I got that the little q was the quantity of s...Wow, I got that the <i>little q</i> was the quantity of some arbitrary product, but I didn't get that <i>big Q</i> was the summed quantity RGDP until you said "Look at equation 2.6, where they calculate Paasche RGDP directly..."<br />So, thank you Nick. I learned something today.<br /><br />"Laspeyres is biased in one direction, and Paasche is biased in the other direction, so Fisher takes an average."<br />Yes, I got that from something I read at Statistics Canada. That much made a lot of sense to me. But let me not dwell on this topic, for I read until my brain was full, and now my brain is full.<br /><br />Thanks, Nick, for letting me watch you think about things.<br />The Arthurianhttps://www.blogger.com/profile/16501331051089400601noreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-19504328615376661622012-11-21T08:43:04.555-05:002012-11-21T08:43:04.555-05:00Hmmm. Now I'm changing my mind again, after re...Hmmm. Now I'm changing my mind again, after reading a much clearer Statistics Canada document. Look at section 2.135 on down in this pdf:<br /><br />http://www.statcan.gc.ca/pub/13-017-x/2008001/pdf/5220040-eng.pdf<br /><br />It shows how to calculate Fisher RGDP directly, without first calculating a Fisher price index.<br /><br />I'm now starting to think that this is a non-question. Like debating whether the chicken or the egg comes first. You can do the math either way around. You can calculate P first, or you can calculate RGDP first. It doesn't matter.<br /><br />Look at equation 2.6, where they calculate Paasche RGDP directly, without first calculating a Paasche price index.<br /><br />Or 2.7, where they calculate Fisher RGDP directly, without first calculating a Fisher price index.<br /><br />But you could equally well calculate a price index directly, without first calculating RGDP.<br /><br />I now think me and Scott were (stupidly, in retrospect) arguing about nothing. We were both wrong, because we thought there was a difference, when there isn't.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-56583731470670672742012-11-21T07:30:01.391-05:002012-11-21T07:30:01.391-05:00Yep. Reading the bottom of page 34, it sounds like...Yep. Reading the bottom of page 34, it sounds like I am 10 years out of date. They switched from chained Laspeyres to chained Fisher for RGDP, and the US probably switched around the same time. That means it's a mix of the two. Which makes sense. Laspeyres is biased in one direction, and Paasche is biased in the other direction, so Fisher takes an average.<br /><br />Which is the limit of my understanding of index number theory.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-52302850112790231122012-11-21T07:01:53.619-05:002012-11-21T07:01:53.619-05:00So, I went to the Statistics Canada website, and f...So, I went to the Statistics Canada website, and found this (pdf), which told me more information than I can handle.<br />http://www.statcan.gc.ca/pub/15-547-x/15-547-x2002001-eng.pdf<br /><br />Chapter 4 is the relevant one. I had thought that StatsCan uses the "Chain Laspeyres" index for GDP (see page 32). That's what I described above. But it sounds like they are maybe using Fisher, which is a geometric average of Laspeyres and Paasche.<br /><br />If I understand it right (I may not):<br /><br />In Laspeyres you first multiply today's vector of quantities by yesterday's vector of prices, to get real GDP today. Then you divide NGDP by RGDP to get the price index. (That's what I had thought they all did, so that RGDP comes before P.)<br /><br />In Paasche you first multiply today's vector of prices by yesterday's vector of quantities to get a price index. Then you divide NGDP by P to get RGDP. (Which is the opposite).<br /><br />And Fisher takes a geometric average of those two methods.<br /><br />Maybe the US means "Fisher" when it says "the deflation method"?Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-86357985072073279632012-11-21T06:23:11.049-05:002012-11-21T06:23:11.049-05:00Hmmm. I thought they used the "direct valuati...Hmmm. I thought they used the "direct valuation" method. Multiply this period's vector of quantities by last period's vector of prices.<br /><br />What they don't explain in the "deflation" method is how they get that "appropriate price index". How do they convert a vector of prices into a scalar, so they can divide it into nominal GDP for that component? Do they use last period's vector of quantities, and multiply it by this period's vector of prices, like with the CPI? If so, my understanding was wrong. Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.com