Some Methodological Notes on the Deflation of Construction

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Abstract
Because of the difficulties in finding homogeneous final outputs, the procedure in general use for the deflation of construction involves the pricing of inputs rather than outputs and consequently ignores changes in productivity. The present paper proposes: (a) a re-definition of output in terms of intermediate products; and (b) because of the inapplicability of a direct method, two indirect methods for obtaining a measure of the change in the average price of intermediate products. One of the two methods combines an index of input prices and a measure of productivity changes, the latter of which may be of some independent interest. * I am indebted to Richard Moorsteen of the RAND Corporation and Raymond P. Powell of Yale University for helpful comments on this paper and discussions of the underlying issues.

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