Australian Bureau of Statistics
1301.0 - Year Book Australia, 2008
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 07/02/2008
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DEFINING AND MEASURING GDP
Compared with many developed economies, Australia has experienced relatively strong growth over the past ten years. With an average annual growth rate of 3.5% for GDP volumes from 1997 to 2006, it is higher than all of the 'G7' countries (table 30.2).
The reason for having volume estimates in the national accounts is to provide time series of expenditure and production aggregates which are free of the direct effects of price change. All the current price aggregates of expenditure and production appearing in the national accounts are estimates of the sums of the values of individual transactions. Each of these transactions has two components - a price and a quantity. From one period to another the quantities and prices comprising the transactions change. This means that when the current price value of an aggregate, such as GDP, in one period is compared with the current price value in another period, the difference between them usually reflects both changes in quantity and changes in price of the constituent transactions. In order to estimate by how much the 'volume' of GDP has changed between the two periods we need to measure the value of GDP in each period using the same unit prices.
For many years the Australian Bureau of Statistics (ABS) derived constant price estimates as a means of measuring changes in the volumes of aggregates. Constant price estimates are derived by fixing the unit prices of goods and services to those of some base year. These base year unit prices are effectively the weights used to combine the quantities of the different goods and services purchased or produced. The unit prices of different goods and services tend to grow at different rates - some at dramatically different rates. For example, the prices of computer equipment are estimated to have declined by about 92% between 1989-90 and 2005-06, while the prices of most other goods and services have increased. Therefore, over time, the price relativities of some goods and services change appreciably. This adversely affects the usefulness of constant price estimates for periods distant from the base year, and implies that the base year used to derive constant price estimates needs to be changed from time to time. It was ABS practice, in common with many other national statistical agencies, to change the base year every five years. However, it has been found that rebasing every five years is commonly insufficient, and hence the international standards recommend rebasing every year and linking the resulting indexes to form annually reweighted chain volume measures.
Volume estimates, formed through annual reweighting are not generally additive. In other words, component volume estimates do not usually sum to a total in the way original current price components do. In order to minimise the impact of this characteristic, the ABS uses the latest base year as the reference year (i.e. the year when the annual volume estimate equals the current price value). Re-referencing changes the level of the volume estimates, but does not of itself change the growth rates. By adopting this approach, non-additivity does not apply to the reference year or the following year.
Chain price indexes and implicit price deflators
A by-product of the calculation of volume measures is the implicit price deflator (IPD). An IPD is the price index obtained when a current price estimate is divided by the corresponding volume measure. The ABS publishes a time series of IPDs for each of the expenditure components of GDP (excluding the changes in inventories).
Chain price indexes are also published for the major expenditure aggregates. They are the prices equivalent of chain volume estimates. Quarterly chain price indexes are generally superior to IPDs for measuring price change, because the quarter-to-quarter growth rates calculated from the IPDs reflect changes in composition of the expenditure aggregate as well as pure price change. For example, it is possible for an IPD to increase or decrease from one quarter to another without there being any change in price. Changes in chain price indexes, on the other hand, only reflect pure price change.
This page last updated 3 June 2010
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