Barcelona Tutorial Ch V

1 The Measurement of Business Capital, Income and Performance Tutorial presented at the University Autonoma of Barcelona, Spain, September 21-22, 2005; revised December 2005. Erwin Diewert, Department of Economics, University of British Columbia, Vancouver, Canada, V6T 1Z1. Email: diewert@econ.ubc.ca V. Constructing a Capital Stock for Inventories and the Measurement of Inventory Change 1. Introduction 2. The SNA Treatment of Inventory Change 3. A Suggested Alternative Treatment of Inventory Change 4. Conclusion Appendix: A Theoretical Treatment of Inventory Change 1. Introduction The current System of National Accounts (SNA) treatment of inventory change in real terms is very confusing to users. The problem is that it can happen that the value of inventory change has a sign that is opposite to the sign of the corresponding constant dollar inventory change. This means that the corresponding implicit price deflator is meaningless. In this paper, the nature of the problem is explained and a solution to the problem is suggested. In the Appendix, a theoretical framework that provides a unified 1treatment for measuring inventory change and the user cost of inventories is explained. Appendix 2 gives some background information on the origins of the theoretical framework used in Appendix 1. In section 2, a simple 2 good, 4 period numerical ...