Gross Domestic Product (GDP) refers to the total value of goods and services produced by an economy during an accounting period.

Nominal growth is the change of GDP at current prices between time periods, which can be driven by changes in price or changes in volume. Real growth is obtained by eliminating the effect of price change from the nominal growth, and thus equal to volume change.

Internationally, constant price estimates and chain volume measures are two common measures for volume change of GDP. In 2010, the Statistics and Census Service (DSEC) adopted the chain volume measures in calculating the volume change of GDP in place of the previous constant price method. Under the constant price method, a certain year is selected as the base year; constant price volume estimates of GDP for subsequent years are the aggregation of its components computed by multiplying the price of each component in the base year by its volume in the current year, and the real growth is derived from the comparison of constant price volume estimates at different years. Prices of GDP components change at different rates and even in opposite directions, e.g. the price of food increases while the price of mobile phone decreases, resulting in continuous change in the price structure of goods and services at different years. The more distant from the base year, the larger the difference from the price structure of the base year. Therefore, constant price estimates become less useful for years more distant from the base year and for those countries with rapid changes in price structure, and regular rebasing is thus necessary to ascertain its relevance.

Under the chain volume measures method, the annually re-weighted chain linking approach is adopted to compile the volume measures of GDP and its components. Firstly, the volume estimates of major components of GDP in current year are re-valued at preceding year prices, which in practice are calculated by “deflating” the current price values of subcomponents by the relevant price indices. Secondly, the short term volume indices for different years, calculated by dividing the volume estimate of GDP from Step 1 by the current price GDP in the previous year, are chain linked to a selected reference year in order to obtain a continuous time series of the chain volume indices of GDP and its components. The chain volume index series can be converted into the chained dollar series by multiplying the chain volume index by the current price value in the reference year. As the chain volume measures use the price structure in the preceding year as weights, and price structures of two consecutive years are similar; hence, they provide a more accurate measure of the real economic growth.

Since the theoretical concepts of constant price estimates and chain volume measures are complicated for general readers to understand, agricultural products are used as examples in the following context to illustrate the two methods. By comparing, the two methods, reasons for adopting chain volume measures are explained. Finally, aggregating arithmetic interpretation and real case example, detailed explanation on application and calculation of chain volume measures are presented. General readers can read Section II, III and IV to have an overview on the methods and differences between constant price estimates and chain volume measures. Section V and VI involve more complicated arithmetic interpretation, thus are only relevant for readers who are interested in the theoretical concepts.