Measuring the Transition

Measuring the Transition: A User's View on
National Accounts in Russia by Vincent Koen

As Russia's transition unfolds, the traditional national accounts
concepts and reporting mechanisms become increasingly inadequate.
Notwithstanding the substantial work already carried out by the statis-
tical authorities, with the technical assistance of several multilateral
institutions, the margin of error associated with basic price and quantity
estimates is widening substantially. This paper discusses key measurement
and interpretation issues and provides examples that reveal the dangers
associated with uncritical use of raw data. While the paper's focus is on
Russia, similar issues arise in the other states of the former Soviet Union
and, to a lesser extent, in the economies in transition of Central and
Eastern Europe.

Severe index problems affect the measurement of prices and volumes.
In a short period, Russia moved from a system of rigid price lists to
decentralized price setting and from repressed to open--and very high--
inflation. Even with the best statistical apparatus, such a radical change
would create extremely difficult measurement problems. Given the breakdown
of the traditional reporting mechanisms and the extent of structural change,
the information conveyed by the existing retail and producer indices became
misleading and a new consumer price index was set up. Further work,
however, remains to be done on the other key deflators, which either suffer
from technical deficiencies or are not available. For the same reasons,
output volumes are mismeasured, all the more so because the traditional
census approach to data collection often prevails. The problem is
particularly acute for the service sector.

Some of the analytical and policy implications of these index problems
are discussed. Estimates of the size of the economy are likely to vary
considerably depending on the indices used, implying that cross-country
comparisons are hazardous. Rates of change in real output are also
difficult to measure under these circumstances. An assessment of the
evolution of wages, consumption, profits, and stockbuilding in real terms
is heavily influenced by the choice of deflator. Pervasive arrears and
tardy adjustments for inflation in stock valuation distort some of the key
aggregates in the national accounts.