IDEAS home Printed from https://ideas.repec.org/a/taf/applec/v39y2007i5p605-611.html
   My bibliography  Save this article

More on stochastic index numbers

Author

Listed:
  • Kenneth Clements
  • E. A. Selvanathan

Abstract

There are three major approaches used to estimate index numbers. The first is Fisher's test approach whereby indexes are judged on their ability to satisfy certain criteria. The economic theory of index numbers is the second approach and this deals with their foundations in utility theory. The third approach is a less well-known methodology, but one which is now attracting considerable attention, the stochastic approach which is a new way of viewing index numbers in which uncertainty and statistical ideas play a central role. While providing a point estimate for the index number like the other two approaches, the stochastic approach additionally provides the SE of the point estimate. This article enhances understanding of stochastic index numbers by showing that they are formally equivalent to the familiar optimal combination of forecasts with the individual prices playing the role of n forecasts of the overall rate of inflation. This leads to new analytical results on the impact of adding additional information within the stochastic approach framework. We provide two concrete examples of the sources of such additional information: (i) the quantity theory of money; and (ii) the use of quantity data in addition to price data. We also illustrate some of these theoretical results using real data.

Suggested Citation

  • Kenneth Clements & E. A. Selvanathan, 2007. "More on stochastic index numbers," Applied Economics, Taylor & Francis Journals, vol. 39(5), pages 605-611.
  • Handle: RePEc:taf:applec:v:39:y:2007:i:5:p:605-611
    DOI: 10.1080/00036840500439093
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/00036840500439093
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zahid, Asghar & Frahat, Tahira, 2010. "Measuring inflation through stochastic approach to index numbers," MPRA Paper 21513, University Library of Munich, Germany.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:applec:v:39:y:2007:i:5:p:605-611. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Longhurst). General contact details of provider: http://www.tandfonline.com/RAEC20 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.