How to calculate gdp deflator without real gdp
The GDP (Gross Domestic Product) deflator is an essential economic indicator used to measure the general price level for a country. It helps economists and analysts determine inflation or deflation by comparing the nominal GDP and real GDP. However, there might be situations where real GDP data is not available. In such cases, you can still calculate the GDP deflator without real GDP. This article will guide you through the steps to do so.
1. Gather Required Data:
To calculate the GDP deflator without real GDP, you will need two essential pieces of information:
– Nominal GDP: The market value of all goods and services produced within a country for a specific period, measured in current prices.
– Base Year Price Index: A price index that compares the current year’s prices with a base year.
2. Estimate Real GDP using another Base Year Price Index:
If real GDP data is unavailable for the year you want to calculate the deflator for, look for an alternative source that provides real GDP data with reference to another base year price index.
3. Calculate Conversion Factor:
Find the ratio of the base year price index used in step 2 and your desired base year price index. In other words, divide your desired base year price index by the base year price index used in step 2. The result is the conversion factor.
For example,
Conversion Factor = (Desired Base Year Price Index) / (Alternative Base Year Price Index)
4. Adjust Real GDP Data:
Multiply the estimated real GDP from an alternative source (step 2) by the conversion factor obtained in step 3 to adjust it according to your desired base year price index.
Adjusted Real GDP = Estimated Real GDP * Conversion Factor
5. Calculate the GDP Deflator:
Finally, use this Adjusted Real GDP in conjunction with Nominal GDP to calculate the GDP deflator using the following formula:
GDP Deflator = (Nominal GDP / Adjusted Real GDP) * 100
Conclusion:
Calculating the GDP deflator without real GDP can be accomplished by estimating real GDP through alternative sources, adjusting it with a conversion factor, and then using the adjusted real GDP to compute the GDP deflator. This method allows you to determine the price level changes in an economy even when real GDP data is missing or not readily available.