Gross domestic product and Leptokurtosis: Difference between pages

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(GDP).  
Leptokurtosis is observed in many financial distributions.  


A measure of the monetary value of total output of finished goods and services produced using factors of production located in the country whose GDP is being measured in the time period over which it is being measured.  
It means a more ‘pointy-headed’ and ‘fat tailed’ observed distribution, compared with the distributions predicted by the normal and lognormal models.  




It is commonly measured in three ways.
Importantly, there is a fatter downside tail (‘left tail’) in the observed data.  
#An output measure: the value of goods and services produced by all sectors of the economy, often taken as agriculture, manufacturing, energy, construction, the service sector and government.
#An expenditure measure: the value of the goods and services purchased by households and governments, investment in machinery and buildings and exports minus imports.
#An income measure: the value of income generated mostly in terms of profits and wages.


In other words the observed frequency of large negative returns (or results) is greater than predicted - for example - by the lognormal model of the distribution assumed in the Black Scholes option pricing model.


In principle the three methods should produce the same answer, but they are each estimated in ways that are practical but not quite fitting the theory.


Indeed how the theory should be applied is often disputable.
Because of leptokurtosis, Value at Risk models which use a normal frequency distribution will understate the Value at Risk.
 
Some of this is discussed in the article on [[inflation]].
 
 
GDP equivalents can also be estimated for regions, or indeed the entire world.




== See also ==
== See also ==
* [[Balance of payments]]
* [[Black Scholes option pricing model]]
* [[Black economy]]
* [[Fat tail]]
* [[Double dip]]
* [[Leptokurtic frequency distribution]]
* [[Gross fixed capital formation]]
* [[Lognormal frequency distribution]]
* [[Gross National Income]]
* [[Normal frequency distribution]]
* [[Gross national product]]
* [[Tail]]
* [[Inflation]] -  see 'Points to note'
* [[Value at risk]]
* [[Office for National Statistics]]
* [[Product]]
* [[Real GDP]]
* [[Recession]]
 
 
== External link ==
[https://blog.ons.gov.uk/2017/07/06/beyond-gdp-measuring-the-economic-well-being-of-individuals/ Beyond GDP - UK Office for National Statistics blog]


[[Category:The_business_context]]
[[Category:The_business_context]]

Latest revision as of 17:36, 1 July 2022

Leptokurtosis is observed in many financial distributions.

It means a more ‘pointy-headed’ and ‘fat tailed’ observed distribution, compared with the distributions predicted by the normal and lognormal models.


Importantly, there is a fatter downside tail (‘left tail’) in the observed data.

In other words the observed frequency of large negative returns (or results) is greater than predicted - for example - by the lognormal model of the distribution assumed in the Black Scholes option pricing model.


Because of leptokurtosis, Value at Risk models which use a normal frequency distribution will understate the Value at Risk.


See also

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