An alternative estimate of real inventory change for national economic accounts

The alternative measure of inventory change considered is the difference between a Fisher index of inventory acquisitions and a Fisher index of inventory disposals. The consistency of this measure with real GDP is first examined analytically. It is shown that, for inventory changes likely to be observed, the approximation error in the aggregation of GDP components due to measuring inventory change as the difference between Fisher indexes of inventory acquisitions and disposals should be small. Second, the consistency of the alternative measure with real GDP is tested over the period 1977-98. The tests compare the actual approximation errors in the two-stage aggregation of GDP using inventory change based on the two methods: the present NIPA methodology and the alternative, Fisher difference method. These tests provide further support for the alternative method of estimating real inventory change.