Economic Analysis Series No.207THE ECONOMIC ANALYSIS

June, 2023

(Editorial Note) How Can We Improve GDP in the JSNA?: Koji NOMURA
(Articles) Production and Welfare: Progress in Economic Measurement: Dale W. JORGENSON
Secondary Products in Japan's Benchmark Production System: Koji NOMURA and Kozo MIYAGAWA
Benchmark Measurement of Wholesale and Retail Outputs in Japan: Has the Use of Economic Census Improved GDP in the JSNA?: Koji NOMURA and Kozo MIYAGAWA
Commercial Property Price Indexes and the System of National Accounts: Erwin DIEWERT and Chihiro SHIMIZU
Measuring Imputed Rent and SNA: Uses, Approaches, and Challenges: Robert J. HILL, Miriam STEURER and Chihiro SHIMIZU
Measuring the Output of the Education Sector in Japan, 1955-2019: Koji NOMURA
Research on a Method for Estimating Prices Reflecting Changes in the Quality of Medical Care: Toshimi NISHIZAKI and Susumu KUWAHARA
How Can the Digital Economy be Grasped?: New Attempts and Issues: Shuji HASEGAWA
Toward Improving Quarterly National Accounts (QNA) in Japan: Lessons from Major Advanced Economies: Yosuke TADA

The full text is written in Japanese.

(Abstract)

Production and Welfare: Progress in Economic Measurement

By Dale W. JORGENSON

While the GDP was intended by its originators as a measure of production, the absence of a measure of welfare in the national accounts has led to widespread misuse of the GDP to proxy welfare. Measures of welfare are needed to appraise the outcomes of changes in economic policies and evaluate the results. Concepts that describe the income distribution, such as poverty and inequality, fall within the scope of welfare rather than production. This paper reviews recent advances in the measurement of production and welfare within the national accounts, primarily in the United States and the international organizations. Expanding the framework beyond the national accounts has led to important innovations in the measurement of both production and welfare.

JEL Classification Codes: D63, E01, E23, E24, E31, I20
Keywords: Economic Measurement, National Accounts, Productivity, Social Welfare, Fairness, Human Capital, Sustainability, Beyond the GDP, SDGs

Secondary Products in Japan's Benchmark Production System

By Koji NOMURA and Kozo MIYAGAWA

Measuring benchmark production system, including secondary products, plays a crucial role in determining the accuracy of GDP. The purpose of this paper is to find a type of relationship between main activities (395 activities based on Japan Standard Industrial Classification) and secondary products (SDS 900 products) based on the Survey on Diversification of Sales (SDS) conducted in 2018-19 by the Research Institute of Economy, Trade and Industry. Understanding the production structure of detailed secondary products by main activity enables us to examine the accuracy of the benchmark production system in the Japanese System of National Accounts (JSNA). Our examination shows that 13.0 trillion yen of the domestic production of secondary products (6.3 trillion yen in GDP or 1.2% of GDP) is likely to be omitted in the 2015 benchmark production in JSNA.

JEL Classification Codes: D24, E01, E23, L23
Keywords: Secondary products, Economic Census, Supply table, Input-Output table

Benchmark Measurement of Wholesale and Retail Outputs in Japan: Has the Use of Economic Census Improved GDP in the JSNA?

By Koji NOMURA and Kozo MIYAGAWA

The benchmark measurement of wholesale and retail outputs in Japan has been based mainly on the Census of Commerce, but since the 2011 benchmark year, it was switched to be based on the Economic Census, which was newly conducted in 2012. Our study investigates five benchmark years since 1995, the changes in the measurement framework have significantly impacted the quality of the Benchmark Input-Output Table, and the current benchmark estimates of wholesale and retail outputs are underestimated. The GDP shortfalls are estimated at 15.8 trillion yen (3.2% of the aggregate GDP) in 2011 and 11.3 trillion yen (2.1%) in 2015. This underestimation bias is a side effect of the overly decentralized nature of Japan's statistical system. More integrated development of bench-marks and annual estimates is required in the Japanese System of National Accounts(JSNA).

JEL Classification Codes: D24, E01, L81, R15
Keywords: Wholesale and retail margin, Input-Output Table, Economic Census, GDP

Commercial Property Price Indexes and the System of National Accounts

By Erwin DIEWERT and Chihiro SHIMIZU

The paper studies the problems associated with the construction of price indexes for commercial properties that could be used in the System of National Accounts. Property price indexes are required for the stocks of commercial properties in the Balance Sheets of the country. Related service price indexes for the land and structure input components of a commercial property are required in the Production Accounts of the country if the Multifactor Productivity of the Commercial Property Industry is calculated as part of the System of National accounts. The paper reviews existing methods for constructing an overall Commercial Property Price Index (CPPI) and concludes that most methods are biased (due to their neglect of depreciation) and more importantly, not able to provide separate land and structure subindexes. A class of hedonic regression models that is not subject to these problems is discussed.

JEL Classification Codes: C2, C23, C43, D12, E31, R21
Keywords: Commercial property price indexes, Net Operating Income, discounted cash flow, System of National Accounts, Balance Sheets, methods of depreciation, land and structure prices, hedonic regressions

Measuring Imputed Rent and SNA: Uses, Approaches, and Challenges

By Robert J. HILL, Miriam STEURER and Chihiro SHIMIZU

Imputed rent is the rent a person would have to pay to own and occupy a property. It accounts for about 9 percent of gross domestic product (GDP) in the Japan and US, while its weight in the consumer price index (CPI) is about 24 percent. Through this considerable influence on GDP and CPI statistics, imputed rents affect pension payments, wage negotiations, tax policy, macroprudential oversight, and monetary policy. In light of this substantial impact on GDP and the CPI, the accurate measurement of imputed rent is essential for both national statistical institutes and central banks. Moreover, imputed rent is important in providing reliable estimates of income inequality. Its inclusion in inequality measures significantly boosts the adjusted income of owner-occupiers relative to renters. This can increase or decrease measured income inequality. The public finance literature has also paid attention to imputed rent as a potentially significant source of tax revenue. In what follows, we examine these various uses of imputed rent and the main methods for measuring it. In this paper we aim to critically review this literature and highlight some of the key challenges for the future.

JEL Classification Codes: C31, C43, E01, E31, E52, R31
Keywords: Measurement of inflation, SNA, Owner occupied housing, User cost, Rental equivalence, Hedonic Index, Inflation targeting

Measuring the Output of the Education Sector in Japan, 1955-2019

By Koji NOMURA

Various methods have been considered in measuring non-market-produced educational services, but their proper evaluation requires the development of consistent measurements based on a common data foundation. This paper aims to approach price-quantity indices reflecting changes in the quality of education services using multiple approaches based on long-term time series data from the Education Services Production Database of Japan (ESJ) in Nomura (2020a), which is detailed cross-classification data on school education services in Japan, and the Extended Input-Output Table for Education Sector (EIOT) constructed in Nomura (2020b) based on the ESJ, covering 1955-2019. Four methods are applied: I. Unweighted output volume method, II. Output volume method, III. Input method, and IV. Hybrid method, in which the output volume method is applied to educational activities in a narrow sense and the input method to its auxiliary activities. In applying the Output volume method (II and IV), three output measures are defined: a. the number of students, b. total class hours of students, and c. total class hours of teachers. In Japan, where the number of students has been declining, applying the Output volume method based on the demand-side output indicators (a and b) is not necessarily effective as a quality-adjusted price/quantity indices. According to the measurement in this paper, IV. Hybrid method based on the supply-side output indicator (c) is evaluated as the most effective approach for capturing the quality changes from the point of view of the production account in the national accounts.

JEL Classification Codes: E01, H52, H75, I21
Keywords: Education sector output, Output volume method, Input method, Hybrid method, Price index, Quality change

Research on a Method for Estimating Prices Reflecting Changes in the Quality of Medical Care

By Toshimi NISHIZAKI and Susumu KUWAHARA

The Economic and Social Research Institute, Cabinet Office, Government of Japan(ESRI) has been studying methods for estimating prices reflecting changes in the quality of medical care with the aim of improving the accuracy of national accounts. In this paper, we summarize the basic concept based on the results of studies conducted in other countries and international organizations, etc., examine the methodology, perform trial calculations, identify issues, and discuss the estimation of deflators using medical data.

Specifically, we used the Ministry of Health, Labour, and Welfare's “National Database of health Insurance Claims and Specific Health Checkups of Japan (NDB)” to estimate the deflator using a method that adjusts the quality of medical care by subdividing the classification of injuries and illnesses. The estimation results suggest a gradual increase in the disease-based deflator. The results of this estimation are an important milestone in the deflator study reflecting the quality of medical care. On the other hand, there are still major issues to be considered in adjusting the quality of medical care. For example, there are many technical limitations to the receipt information used in this study, and even internationally, no solid method has yet been established for quality adjustment.

The method of estimating the medical care deflator has developed while reflecting changes in medical care systems in various countries. In order to fully introduce a deflator reflecting changes in the quality of medical care into national accounts in the future, it will be necessary to overcome the challenges in turn by conducting multifaceted research, keeping a close eye on trends in international research on changes in medical care systems and quality adjustment in Japan and overseas, in addi-tion to more detailed estimates using the NDB.

JEL Classification Codes: E01, E31, I10
Keywords: national accounts, deflators, medical care

How Can the Digital Economy be Grasped?: New Attempts and Issues

By Shuji HASEGAWA

There is a lively debate concerning the accurate reflection of the digitalization of the economy in the System of National Accounts (SNA), and as a part of this the Organisation for Economic Co-operation and Development (OECD) has put forward a conceptual framework (guidelines) to comprehensively measure digital economic activity in its Digital Supply-Use Tables (SUTs), which configure the classification of industries, products and transactions and are suited to grasping the digital economy. Similarly to the attempts already made in some countries, we made a calculation (for the years 2015 and 2018) of Japan's digital SUTs making measurements as closely as feasible to those in the OECD guidelines. In addition, while free digital services such as the social media and search engines provided over the internet are outside of the production boundary of the SNA, they exert a considerable impact on consumer welfare. Research is underway on estimation methods and conceptual frameworks within the SNA concerning the measurement of these values, and we present an outline of the main results here. Work on the revision of the 2008SNA is currently being con-ducted, and it is expected that the data that is the most important resource of the digital economy will be capitalized and its measurement and valuation will have a large impact upon main aggregates like GDP.

JEL Classification Codes: C43, D60, E22, O3
Keywords: Digital economy, GDP, Satellite Account, Free digital services, Welfare measurement, Index number theory, Data, Intangible assets

Toward Improving Quarterly National Accounts (QNA) in Japan: Lessons from Major Advanced Economies

By Yosuke TADA

As the COVID-19 has had unprecedented impact on the worldwide economy, there is a growing need for the statistical data to capture the economic impact caused by significant shocks and the effectiveness of counteracting policies in a timelier manner. A System of National Accounts (SNA), compared to other official statistics or big data, has a strength in providing more systematically consistent and comprehensive data including macroeconomic aggregates such as gross domestic products (GDP) and net lending or net borrowing of institutional sectors like households and corporations. To further exploit such advantage, the efforts for compiling and publishing broader indicators in SNA on quarterly basis is underway internationally. This article aims at deriving some lessons for improving Japanese quarterly national accounts, surveying both (i) the current status compiling quarterly GDP from three approaches (expenditure and income) and the efforts to improve their accuracies, and (ii) the status quo of compiling quarterly sectoral accounts and their practical implication, in four major advanced economies, i.e. Germany, France, UK and USA. While there is no such thing as the single best practice in compiling quarterly preliminary GDP, Japan which relies on expenditure approach should move forward to ameliorate its compilation by introducing more granular estimation approach in terms of the supply side commodity classifications, thereby improving the consistency with annual estimates. Further promoting the development of other aspects of GDP is also an issue in order to pursue for further accuracy by enabling checks and balances among multiple approaches. As for quarterly sectoral accounts which Japan is left behind compared to its peers, a priority would be developing a series of accounts of non-financial corporation, the sector that no information is compiled at hand, along with the research project to create quarterly income side GDP.

JEL Classification Codes: D24, E01, L23
Keywords: quarterly preliminary GDP, supply and use table, sectoral accounts

Page top