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Is the Output Growth Rate in NIPA a Welfare Measure?

Author

Abstract
Bridging modern macroeconomics and the economic theory of index numbers, this paper shows that real output growth as measured by National Income and Product Accounts (NIPA) is a welfare based measure. In a two-sector dynamic general equilibrium model of heterogeneous households, recursive preferences and quasi-concave technology, individual welfare depends on present and future consumption. In this context, the Bellman equation provides a representation of preferences over current consumption and investment. Applying standard index number theory to this representation of preferences, it is shown that the Fisher-Shell true quantity index is equal to the Divisia index in turn well approximated by the Fisher ideal chain index used in NIPA.

Suggested Citation

  • Jorge Duran & Omar Licandro, 2018. "Is the Output Growth Rate in NIPA a Welfare Measure?," AMSE Working Papers 1840, Aix-Marseille School of Economics, France.
    • Handle: RePEc:aim:wpaimx:1840
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    More about this item

    Keywords

    growth measurement; quantity indexes; equivalent variation; NIPA; Fisher-Shell index; Divisia index; embodied technical change;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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