Gerschenkron effect
The Gerschenkron effect was developed by Alexander Gerschenkron, and claims that changing the base year for an index determines the growth rate of the index.
This description is from the OECD website:[1]
| “ | The Gerschenkron effect can arise with aggregation methods that use either a reference price structure or a reference volume structure to compare countries. For methods employing a reference price structure, a country's share of total GDP (that is the total for the group of countries being compared) will rise as the reference price structure becomes less characteristic of its own price structure. For methods employing a reference volume structure, a country's share of total GDP will fall as the reference volume structure becomes less characteristic of its own volume structure. The Gerschenkron effect arises because of the negative correlation between prices and volumes. In other words, expenditure patterns change in response to changes in relative prices because consumers switch their expenditure towards relatively cheap products. | ” |
References
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