Comment by Bethel on What Do GDP Growth Curves Really Mean? · 2021-10-17T00:45:57.510Z · LW · GW

I.

Great post, but chaining merits more than just a disclaimer here. After all, it was introduced to deal with some of the issues your post discusses.

I highly recommend reading this 1995 article explaining the introduction of the chain-weighting approach. It's short, accessible, and has several simple concrete examples.

A few excerpts:

A major fault with [the fixed-base-year] method is that in periods of substantial economic change it results in BEA growth estimates that are highly sensitive to the arbitrary choice of the base year. ...

Although BEA has always acknowledged these problems, they have gained greater urgency in recent years because of the spectacular fall in computer prices ...

[By using chain-weighting,] BEA will, in effect, use every year as a base year.

II. Is chain weighting the norm for Real GDP?

Also, it sounds like fixed prices are still the standard thing in most places.

I get the impression chained statistics are pretty standard when it comes to "Real" GDP figures.

The System of National Accounts is a handbook of standardized best practices for measuring economic activity. Chapter 15,B-C discusses how chained indices are preferred for long time series of volume or price.

Countries don't perfectly adhere to these standards of course, but a quick websearch of Anglophone countries finds that:

• The UK switched to using chained measures for real GDP in 2003
• Australia switched over in 1998.
• Canada implemented the change in 1997
• This publication from the OECD mentions in chapter 2.7 that "Chain linking has now been adopted by nearly all OECD countries".