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Introduction of the Chain Fisher Measure of Real GDP

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Presentation by Karen Wilson - May 2001

1	Introduction of the Chain Fisher Measure of Real GDP As of May 31 2001, the quarterly Income and Expenditure Accounts will adopt the chain Fisher index formula as the official measure of real expenditure-based Gross Domestic Product.
2	Why Change? The new calculation produces the most accurate measure of quarter to quarter growth in GDP and its components; The change brings the Canadian measure in line with the US quarterly Income and Product Accounts which also use the chain Fisher formula to measure real GDP.
3	What is different? The weights used to add up real GDP will be based on the Fisher formula instead of the Laspeyres formula Chaining is done quarterly instead of periodically
4	The Old Measure Laspeyres formula chained periodically
5	Strengths and Weaknesses of the Old Measure Strengths easy to use statistically and analytically additive in periods following the most recent base year Weaknesses biased because weights are from the past tends to « drift » due to bias non-additive prior to the base year
6	The New Measure The Fisher formula chained each quarter
7	The Fisher Formula
8	Level of Detail 379 components of seasonally adjusted data 130 Personal Expenditure 25 Government Expenditure 30 Capital Formation 56 Inventories 68 Imports 69 Exports
9	Strengths and Weaknesses of the New Measure Strengths substitution bias is minimized « drift » is minimized Weaknesses computationally difficult not additive for any time period due to chaining
10	What is the Economic Significance of the Change? The Laspeyres measure overstates economic growth when: some prices are declining monotonically relative to other prices in the economy (ICT) there is an abrupt shift in relative prices (Crude petroleum)
11	Impact on GDP & Selected Components
12	Impact on GDP & Selected Components
13	Investment Growth Comparison
14	Investment Growth Comparison - Fisher
15	Impact on Overall GDP Growth
16	Cumulative Effect on GDP
17	Decomposition into Effect of Formula Change and Frequency of Chaining
18	Supplementary Information To facilitate analysis, STC will publish « contribution to change » tables for each set of chained estimates published (personal expenditure, capital formation, international trade, investment in inventories) 1997 constant price data will be published as overlap for 2 years
19	Contribution to Change
20	Conclusions This change is important to make Canada’s official estimate of economic growth more accurate and comparable to that of the US Statistics Canada will do its best to help users in the transition to the Fisher measure