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Chain Fisher volume index - Methodology

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Example 2: Wine and cheese production without the price effect

Still using our wine and cheese economy, this time we want to evaluate the increase in GDP between period Q1 and periods Q2, Q3 and Q4, excluding the price effect. In our table of the economy, we will use the prices in Q1 as "fixed prices":

		Q1	Q2	Q3	Q4
Cheese (kilos)	q	100	105	108	112
	p	15	16	18	20
	v	1,500	1,680	1,944	2,240
Wine (litres)	q	25	30	38	50
	p	22	20	16	12
	v	550	600	608	600
Total GDP		2,050	2,280	2,250	2,840

Applying equation (2), for the growth between Q1 and Q3 we obtain:

Laspeyres index, Q3/Q1

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The growth in real GDP will be 19.8% between Q1 and Q3. The same index can be calculated for all the periods, still using Q1 as a base:

		Q1	Q2	Q3	Q4
LQ_t/Q1	i	1.000	1.090	1.198	1.356

This time, the growth between periods Q3 and Q4, excluding the price effect, is 13.2%:

Laspeyres index, Q4/Q3

It is noteworthy that this growth of real GDP between Q3 and Q4 is greater than the growth in nominal GDP, which is 11.2%. According to this fixed-base Laspeyres index, the implicit price of the GDP, i.e. the nominal GDP divided by the real GDP (also known as the general level of prices), has therefore dropped between Q3 and Q4.

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