Aside from the aggregated information provided by price and quantity indexes, there is growing interest in index decompositions that reveal the contribution of each index component to overall index change. In this paper, we derive a “natural†decomposition of the Fisher price index that is directly implied by its linear homogeneity in price relatives. The proposed “Euler†weights not only indicate the total contribution of each component to total index change but also reveal which component had the highest or lowest marginal impact. Our results can readily be generalized to any index that satisfies the linear homogeneity property.
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Paper provided by Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam. in its series Research Paper with number
ERS-2004-022-F&A Revision_Date: 2009-07-29.