Double Deflation and Aggregation

Abstract

Published input—output tables in constant prices are relatively scarce. Therefore, input—output tables often have to be deflated by the practitioners themselves. The method of double deflation is used predominantly for this purpose. The present paper shows that the double-deflation method is subject to aggregation problems. Necessary and sufficient conditions for the double-deflation method to provide the correct answers are derived. The conditions are found to be stringent and unlikely to be met in empirical cases. The results for aggregation in the case of double deflation are shown to be dual to the traditional results for aggregation in the case of a quantity model, which have been extensively discussed in the literature.