Page 55 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.70, # 2, 2013, pp. 32-66

96 to year 2005-06 as a base year. This has been done in order to reduce the price reference period,

when carrying out the future forecasting and deriving the new outlook, to a shorter time gap, and
hence reducing such price base gap by ten years. Accordingly, the process of rebasing the constant

prices version of the model’s variables, to 2005-06, has been restructured and applied [Assume: X i tcur
th tcon th
: is the sector i value-added at year t and in current prices, and X i : is the i sectoral value-added in year t at constant 1995-
96 prices. Hence; the GDP price index (Deflator) by sectors for 1995-96 can be derived as:
95-96 tcur tcon
P i = X i / X i .However, from the results of applying the above equation, a new price index for a selective
new base-year can be restructured. This selected new base year is 2005-06. Accordingly, the new index would be derived as:
x05-06 t 05-06 t 05-06
P i = P i / P i , where, P i is the price index of sector i in year t with 1995-96 base-year, P i is the
x05-06
sectoral price index in year 2005-06, the column vector, with 95-96 as a base-year, and P i is the sectoral Price index with
2005-06 as a base-year. Accordingly, we have re-valued GDP figures and by sector value-added and by final demand
expenditure categories, with the new derived price index matrix based on 2005-06 base-year. Hence, obtaining the real GDP
05-06 t x 05-06 05-06 is
figures by sectors, based on constant price base of 2005-06. This can be derived as: X i = X i / P i , where, X i
t x05-06
the real GDP by sector value-added in constant 2005-06 prices, and X i and P i as defined above. Nonetheless, it has to be
stated that, this is just a mechanical statistical approach to establish real GDP figures at latest year, i.e. 2005-06, as a base-year].
In the model, however, a part from the above indicators, indices and CPI, what is important

to us in this respect, are the various implicit deflators, that have been derived and used, other
than CPI. These derived implicit deflators are used, in an economically appropriate settings, to

transforming the variety of the model’s variables, from being nominal to real. These, by and

large, can be defined, with their related functions, as:
National Accounts Deflators: These are indices used national accounts estimation

particularly for constant price estimate of gross value added and also for sectoral growth estimation.
Instead of considering sectoral deflator, we used implicit GDP deflator (GDPD) for forecasting.

Consumer Price Index (CPI): BBS has started to compute national CPI on 1985-86 as

base year. The base year has been updated to 1995-96. For model purposes, CPI index has been
rebased to 2005-06. We have used CPI for deflating the following variables:

a. Private consumption
b. Public consumption
c. Government revenue
d. Government expenditure
e. Independent credit disbarment
f. Money supply
Investment Deflator: Investment deflator is taken from National Accounts Statistics.
The base year 1995-96 has been rebased to 2005-06.

Export Deflator: Two types of deflator have been used for estimating real exports.

These are: ‘Unit Price Index of Export’ from National Accounts Statistics and ‘Unit Price Index
of Major Export Items’ from Foreign Trade Statistics. The latter being used for BoPs purposes.

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