Gross Domestic Product
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Transcript of Gross Domestic Product
Gross Domestic Product
Carla Jenkins
Definition
• BEA – Bureau of Economic Analysis, Commerce Department Agency produces the Gross Domestic Product (GDP)
• According to the BEA, GDP is defined as ‘the market value of goods and service produced by labor and property in the US, regardless of nationality.’
• BEA only reports real GDP. GDP became the official growth output estimate in 1991. Pre-1991, BEA computed gross national product.
• BEA defines Real GDP as ‘the value of the production of goods and services in the US, adjusted for price changes.’
Real GDP Construction
• Real GDP (Use textbook definition)• BEA used chained dollar estimates when computing Real GDP.
• Chained-dollar estimate: They are used to approximate the chain-type index level. They correctly show growth rates for a series. I believed that chained dollar estimates were introduced to the BEA real GDP estimates in the early 2000s.
BEA GDP Reporting Structure
• First – new estimate reporting• Second – revision of the first estimate• Third – Used to be called final estimate. Revision of the second
estimate. This estimate can only be revised during the benchmarks.• Benchmark- a cycle occurring every 4-5 years where all estimates are
opened to revision. GDP can be revised all the way back to 1929.
Historical Trends
05
000
100
001
5000
200
00
1920 1940 1960 1980 2000 2020Year
GDP current Real GDP
Market Reaction to Q1 2015 GDP
• Analysts were disappointed that GDP contracted 0.2% versus fourth-quarter 2014.
• This contraction wasn’t a surprise to severe winter. • Stocks went down and analysts opined that the low GDP sent a
market signal to the Federal Reserve that it should delay its interest rate hike.
Real GDP’s Effect Upon Monetary Policy
• The June 2015 Federal Open Market Committee minutes have real GDP prominently featured. The Committee discusses the impact the low first-quarter 2015 GDP estimate would have on its decision to raise the interest rate later this year. The Fed will be looking at the final second-quarter 2015 GDP estimate before deciding.