Aggregates in Real Expression and Price Indices by Deflation

Constantin Anghelache, Marius Popovici, Alina – Georgiana Solomon and Emilia Stanciu

International Journal of Academic Research in Business and Social Sciences, 2017, vol. 7, issue 6, 1053-1060

Abstract: In this article, the authors have proposed to briefly present theoretically how macroeconomic aggregates can be expressed in real expression. It also shows that price indices are the basis for deflation. Deflation is the process by which an aggregate is converted into monetary expression, from current prices into real prices. In the simplest way, transformation is an arithmetic operation of dividing the nominal aggregate into a price index corresponding to the analyzed period. The simplicity of expression has the complexity of how aggregates turn into real expression indicators. Actual expression indicators ensure the possibility of comparability at the level of a state in time when data are brought to the same common denominator by reference to the price index of a base period in that comparison. In other words, the central problem of deflation refers to the construction of a price index to ensure the transformation of an aggregate expressed in nominal prices, aggregated in real prices, in order to determine the level and especially the way in which that indicator was recalculated. In other words, mathematically we express the computational relations so as to arrive at aggregates expressed in real prices or in comparable real values. The deflation of a nominal aggregate with a physical structure implies the transformation of the aggregate primarily into its structural elements so as to ensure comparability in the study both globally and in the structure of macroeconomic output indicators (GDP) elements. We know that gross domestic product can be analyzed structurally according to several criteria from the point of view of sources used, use of gross domestic product, ownership forms, investment/consumption ratio, or wider structure of sectors Contributed to the achievement of the indicators. Therefore, before ensuring any such comparability, there is the question of expressing aggregates in prices or realistically comparable values.

Keywords: Macroeconomic aggregates; price indices; nominal/real aggregate; deflation; method (search for similar items in EconPapers)
Date: 2017
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