<p>I'm using the KLEMS 2009 database to study productivity and wage evolution in Europe. To measure productivity I'm using a variable called VA_P which is described as 'Gross Value Added, price indices, 1995 = 100'.</p>
<p>I've deflated labour compensation with CPI in order to reflect the real purchase power of employees, but I'm wondering if I should also deflate the value added with a GDP deflator, since I'm already working with a price index. I think I'm missing something?</p>

CC BY-SA 4.0
2024-01-06T14:26:01.700Z
The answer depends on your structural model. If it includes variables in real terms, then it is wise to deflate nominal variables by the suitable deflator.
Bertrand
CC BY-SA 4.0
2024-01-06T16:31:16.523Z
@Bertrand sure, but that's not really my question. I want real variables. The question is if an index that uses fixed 1970 prices is real.
Stijn D'hondt
CC BY-SA 4.0
2024-01-06T17:33:22.047Z
Yes, is is real, as it depends only upon elementary quantities.    A good reference is Balk B.M., 2008, Price and Quantity Index Numbers, Cambridge University Press
Bertrand
<data>
Should I use GDP deflator on variable that already is a price index?
Stijn D'hondt
# Should I use GDP deflator on variable that already is a price index?

(Asked by: username_0 on 2024-01-06)

I'm using the KLEMS 2009 database to study productivity and wage evolution in Europe. To measure productivity I'm using a variable called VA\_P which is described as 'Gross Value Added, price indices, 1995 = 100'.

I've deflated labour compensation with CPI in order to reflect the real purchase power of employees, but I'm wondering if I should also deflate the value added with a GDP deflator, since I'm already working with a price index. I think I'm missing something?

**Tags:** data
> **Comments:**
> **username_1**: The answer depends on your structural model. If it includes variables in real terms, then it is wise to deflate nominal variables by the suitable deflator.  
> **username_0**: @Bertrand sure, but that's not really my question. I want real variables. The question is if an index that uses fixed 1970 prices is real.  
> **username_1**: Yes, is is real, as it depends only upon elementary quantities.    A good reference is Balk B.M., 2008, Price and Quantity Index Numbers, Cambridge University Press  

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