Monday , November 19 2018
Home / FRED / What a wonderful world : Tracking global GDP

What a wonderful world : Tracking global GDP

Summary:
[embedded content] Here at the FRED Blog, we often describe the economies of individual countries, but what about the world as a whole? That calculation is more complicated than you may think. It’s not sufficient to just add up all the economies’ GDPs. First, they’re all denominated in different currencies, so you need to convert them into a common currency. Second, determining what exchange rate to use isn’t straightforward: Some are set at levels that don’t correspond to market forces, and even market forces may deviate significantly from purchasing power parity across countries. Thank goodness for the World Bank, which does all these calculations for us. Now, they do make some assumptions that people may or may not agree with; but if you’re looking for the long-run picture, these

Topics:
FRED Blog considers the following as important: , ,

This could be interesting, too:

FRED Blog writes Are we moving toward a cashless economy?

FRED Blog writes The unusual duration of unemployment : The scars of the Great Recession

FRED Blog writes Who pays what in federal taxes?

FRED Blog writes How expensive is it to service the national debt? : A battle between interest rates and growth rates

Here at the FRED Blog, we often describe the economies of individual countries, but what about the world as a whole? That calculation is more complicated than you may think. It’s not sufficient to just add up all the economies’ GDPs. First, they’re all denominated in different currencies, so you need to convert them into a common currency. Second, determining what exchange rate to use isn’t straightforward: Some are set at levels that don’t correspond to market forces, and even market forces may deviate significantly from purchasing power parity across countries. Thank goodness for the World Bank, which does all these calculations for us. Now, they do make some assumptions that people may or may not agree with; but if you’re looking for the long-run picture, these assumptions shouldn’t matter much.

We offer such a picture in the FRED graph above. We still had to modify it a bit, as the World Bank series is in current U.S. dollars. To remove the impact of inflation, we divided the figures by the implicit deflator for U.S. GDP. (This is also a debatable choice, as one would ideally use a deflator for world GDP. But no such deflator is available.)

The graph shows several phases: We see steady growth until about 2002. Then we see a stronger growth spurt. And then, since 2011, we see noticeably slower growth. While this data series is based on every economy in the world, it’s most influenced by the large developed economies. Some of the larger but less-developed economies, such as China and India, have grown a lot. The growth of the latter has slowed down a bit recently, and there’s talk of secular stagnation for the former, stemming from slower productivity growth and declines in the working-age population. Return to FRED in, say, ten years to see how things have evolved, in particular whether the other developing countries have become more significant forces in driving world economic growth.

How this graph was created: Search for “world GDP,” select the series with the longest sample period, and click “Add to Graph.” From the “Edit Graph” panel, add a series by searching for “GDP deflator” and selecting the implicit GDP deflator for the U.S. Apply formula a/b.

Suggested by Christian Zimmermann.

About FRED Blog
FRED Blog
The Federal Reserve Bank of St. Louis is the center of the Eighth District of the Federal Reserve System. This District includes Arkansas, eastern Missouri, southern Illinois and Indiana, western Kentucky and Tennessee, and northern Mississippi.

Leave a Reply

Your email address will not be published. Required fields are marked *