A chained volume series is a series of economic data (such as
GDP
Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is ofte ...
,
GNP
The gross national income (GNI), previously known as gross national product (GNP), is the total domestic and foreign output claimed by residents of a country, consisting of gross domestic product (GDP), plus factor incomes earned by foreign ...
or similar kinds of data) from successive years, put in real (or constant, i.e.
inflation
In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reductio ...
- and deflation-adjusted) terms by computing the production volume for each year in the prices of the preceding year, and then '
chain linking
Chain linking is a statistical method, defined by the Organisation for Economic Co-operation and Development as:
Chain linking is popularly used with gross domestic product/gross national income data, to measure changes over time, giving a cha ...
' the data together to obtain a time-series of production figures from which the effects of price changes (i.e., monetary inflation or deflation) have, at least in theory, been removed. In other words, from the raw GDP or GNP data, which reflect changes in both production volume and prices, a series is obtained which reflects only production volume.
The year-by-year chain linking method differs from some other techniques for compensating for monetary inflation and deflation that are used in economics, such as the
consumer price index
A consumer price index (CPI) is a price index, the price of a weighted average market basket of consumer goods and services purchased by households. Changes in measured CPI track changes in prices over time.
Overview
A CPI is a statistica ...
. The consumer price index uses the observed price of a set 'market basket' of goods and services in any two given years to determine the relative prices in those two years; it does not rely on a cumulative accounting of changes in the intervening years. The consumer price index is thus an example of a fixed-weight compensation method; fixed weight methods relate prices in all years to some single base year. The problem is that the compensation factor derived from any index depends on the weights given to the various items in the market-basket — or the proportions of each item in whatever aggregate amount is being looked at — and the weights that were correct for one time may not be correct for other times. For example, in 1850 the price of horse-fodder would have been an important component of overall price levels, but now it is not. If one is comparing 1850 price levels to present ones, then, the question arises, what weight to give to horse-fodder? It is difficult to know. The chain linking method attempts to avoid this conundrum by never making large leaps in time.
The
United Kingdom
The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and North ...
presently uses chain linking to put its national accounts aggregates (e.g., GDP, GNP) in constant-price terms. From the GDP figures thus obtained can be derived an ''implicit GDP deflator'' which gives a good indication of inflation or deflation in the economy as a whole.
The
United States
The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...
switched to using chained volume series in 1996 as its featured method of putting GDP in constant-price terms. Before that it had used the
Laspeyres index, a fixed-weight method.
[United States, Bureau of Economic Analysis]
''Concepts and methods of the United States National Income and Production Accounts''
{{Webarchive, url=https://web.archive.org/web/20171108104038/https://www.bea.gov/national/pdf/NIPAhandbookch1-4.pdf# , date=2017-11-08 , July 2008. Chapter 4, pages 11 - 23 contains much information on the chain linking method, including mathematical principles.
Notes
National accounts
Index numbers