Fisher Ideal Indexes in the National Income and Product Accounts

Students and researchers selecting tables on the Bureau of Economic Analysis' (BEA) Internet site may be surprised to discover an array of unfamiliar quantity and price indexes in the national income and product accounts. The new method represented in the tables by Fisher Ideal quantity and price indexes was introduced by the bureau during a period of time when users were becoming increasingly dependent on electronic media for data as well as explanatory information. Unfortunately the method changes in the national income and product accounts have received little or no attention from economists in academia. However, the new approach has important implications for the measurement of economic growth and the interpretation of real-dollar estimates of gross domestic product (GDP) and its components. The purpose of this article is to review several aspects of the bureau's 10th comprehensive revision as reported in various issues of the Survey of Current Business. I discuss the impact of substitution bias on the measurement of economic growth under the old method, then show that with the new method there is no longer a fixed base year because the Fisher Ideal indexes are chain-type annual-weighted quantity and price indexes that are in effect rebased each year. The new methodology has resulted in chained dollar estimates of GDP and its components that are not additive in real-dollar terms; I discuss the impact of this inconsistency on the analysis of contributions to growth.1