Some variables in economics like GDP are computed in chain-linked prices or constant prices.

What are advantages of chain-linked prices vs constant prices?

Thank you

  • $\begingroup$ A constant price CPI exists? Where? $\endgroup$ – Brian Romanchuk Apr 18 '20 at 11:16
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    $\begingroup$ Ok. Maybe I made a mistake about constant CPI. What are advantages of chain-linked prices vs constant prices for economic variables like GDP? Thanks! $\endgroup$ – user72728 Apr 19 '20 at 4:07
  • $\begingroup$ I adjusted the question to just list GDP to avoid issues. I think the answer is to find a methodology description of chain linking, as it would probably explain. My understanding is that the advantage of chain linking is that you are constantly updating the deflator to match current conditions, while constant prices face big jumps as the year moves away from the base year. If nobody answers soon, I will try to find a reference. $\endgroup$ – Brian Romanchuk Apr 19 '20 at 19:27

The advantage of chain linking is that component weightings drift away from their weight in nominal GDP as the reference period recedes.

This is a St. Louis Fed document on the methodology: link to website.

I am not familiar enough with the details to summarise it better than that document.


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