Methodological note on the Chain-Linking Method Used in National Accounts
Chain-Linking is a method that is used in order to produce volume measures for the economy and thus to calculate the growth of the economy and its various activities in real terms, without the effects of monetary inflation.
For the Chain-Linking method:
- The “base year” is the year whose current price values are used to weight the price and volume measures derived at the elementary level of aggregation.
- The “reference year” is the year which is used for the presentation of a time series of volume data. In a series of index numbers, it is the year that takes the value 100.
It is important to note that the reference year bears no fixed relation to the years from which weights have been used and re-referencing is simply the application of a scaling factor to a time series, and does not change the growth rates in the time series. Furthermore, for chain-linked volumes (CLVs) there is only one reference period, but there are many base periods. The weights of CLVs are updated each year and are based on the previous year’s data.
Additivity over aggregations is lost when calculations are made for the chained periods. That is component series (i.e. Value Added by economic activity) do not necessarily sum to totals (i.e. Value Added of the total economy). This is the Non-Additivity approach in order to keep all year-to-year growth rates of each variable unchanged when the reference year is changed. Thus, one should re-reference each variable separately, be it an elementary index, a sub-total or an overall aggregate such as GDP. The consequence is that, in the chained volume data of a fixed reference year, discrepancies will arise between individual elements and their totals.