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Chain Fisher volume index - Methodology

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In the 90s, high technology disturbed the price structure ...

A change phenomenon in the price structure of the economy was observed in the 1990s with the sharp decline in the price of computer equipment in a context of general price increases in other goods. In reality, this "drop" in prices consisted of increases in "quality": for example, at the end of the decade, it was possible to acquire a much more powerful computer than ten years earlier, while paying the same price on the market. In other words, a computer of equal quality or capacity cost much less at the end of the decade. While the price of computer hardware fell steadily, there was a substantial increase in investments and in expenditures in this type of equipment.

... and the deflation method was questioned

In such a context, the limitations of the fixed-base Laspeyres type methodology quickly became evident. When calculating real GDP in the late nineties, it was quite clear that the impact of the high technologies on the economy was over valued since the variations revealed by these series were weighted on their much higher 1992 prices (the base year at the time). Given the growing importance of this sector in the economy and the unusual volatility of its prices, the idea of a mobile-base index quickly came to the fore. In the late nineties, several countries around the world had already turned to chain indexes. In Canada, the choice was made to use the chain Fisher index. This was in keeping with the recommendation of the System of National Accounts 1993 (SNA).

The new way of calculating the real series has had a significant impact on quarterly growth rates. For total machinery and equipment, for example, the cumulated differences in growth rates calculated by a fixed-based Laspeyres and a chained Fisher can reach as much as 20 percentage points between 1992 and 2000 (see Graph 1 below). This cumulative difference reaches 1.6 percentage points for the GDP over the same period (see Graph 2 below).

Graph 1: Machinery and equipment

Graph 1: Machinery and equipment

Graph 2: Gross Domestic Product

Graph 2: Gross Domestic Product

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