What is chain drift?

 A nerdy blog. 

1. many goods have lots of variation in prices e.g. with sales

2. suppose, says Eriwn Diewert in Scanner Data, Elementary Price Indexes and the Chain Drift Problem

Revised October 13, 2021 we have the following data where good 2 is never on sale, but good 1 is and gets a massively changing set of quanties, rising in the time, then returning, but importantly, not instantly, to initial quantities

3. beccause the post sale adjustment, plausible if, for example, its a durable good, is slow, chained weights do not return back to initial levels. 

4. the table below shows "Table 2 lists the fixed base Fisher, Laspeyres and Paasche price indexes, PF(FB), PL(FB) and PP(FB) and as expected, they behave perfectly in period 4, returning to the period 1 level of 1. Then the chained Fisher, Törnqvist-Theil, Laspeyres and Paasche price indexes, PF(CH), PT(CH), PL(CH) and PP(CH) are listed. Obviously, the chained Laspeyres and Paasche indexes have chain drift bias that is extraordinary but what is interesting is that the chained Fisher has a 2% downward bias and the chained Törnqvist has a close to 3% downward bias."

GDP and health: stocks, flows, output and outcomes

 Interesting discussion at Imperial today.  

1. The health of a nation can be thought of as an outcome (e.g. premature death) and/or a stock (the number of heavy smokers) and/or a flow (number of operations performed per year). 

2. GDP is a flow.  It is the flow of output via people purposefully employed in producing that output flow.  It isn't outcomes.  So a healthy society via social norms or parents helping their children produces an outcome but not an output.  The output of health is operations done, patients seen.  Which can of course be measured better.

3. Missing markets.  Well, people at home are producing things as well.   Not only with modern working from home, but reading to children, looking after family all of which produces a flow of services.  But, we don't typically have that included in GDP since we don't know what price to allocate to that activity, since it's not an activity that's sold in the market.  We could make some assumptions e.g. by taking the market price of a carer working for a care home but typically we don't do this. 

4.  So, GDP doesn't necessarily measure well-being.  

5. In our Indigo Prize essay we explain more on GDP as a flow, adding up the flow of iPads, pencils and 737s, and going beyond GDP.  And the ONS produces a dashboard of health outcome indicators. 

Policy-making under uncertainty: a case study

 A column by Megan Greene, FT, Dec 2 2021 reminds me of the omicron situation in Winter 2021.

November 30, 2021

The chief executive of Moderna has predicted that existing vaccines will be much less effective at tackling Omicron than earlier strains of coronavirus and warned it would take months before pharmaceutical companies could manufacture new variant-specific jabs at scale.

November 30th 2021

[Mr.Sahin is]...refusing to panic about the spread of Omicron, its newest variant. “I am personally not scared about the situation. We expected such a variant to come,” Ugur Sahin told The Economist in an interview. He is co-founder and chief executive of BioNTech,

December 1st 2021

Vaccines will likely protect against severe Covid-19 cases from the new omicron variant...WHO chief scientist Soumya Swaminathan said