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Other Transitive Indices

In: The Index-Number Problem and Its Solution

Author

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  • G. Stuvel

    (All Souls College)

Abstract

All that has been said in Part I about the choice of formula for the measurement of the volume and the price development of a commodity aggregate from one year to another applies equally where the two situations that are compared with each other are separated from each other not in time but in space. This statement, of course, assumes that, where the latter type of comparison is one between two countries with different currencies, the values and prices in one of those countries will be converted into the currency of the other before the various formulae are applied. The means of conversion to be used for this is the average rate of exchange (r) between the two currencies for the period to which the data on which the comparison is based refer. Where the conversion is not made, the price formula will yield not a proper price index (P), but what is called the purchasing power equivalent (PPE) of the one currency in terms of the other with respect to the particular commodity aggregate to which the price comparison relates. These purchasing power equivalents are widely used in inter-country comparisons. Their relation to the corresponding proper price index is simply (6.1) P P E = r P $$PPE = rP$$ where r = the exchange rate of the currency of the country compared with the base country against the currency of the latter.

Suggested Citation

  • G. Stuvel, 1989. "Other Transitive Indices," Palgrave Macmillan Books, in: The Index-Number Problem and Its Solution, chapter 6, pages 74-95, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-10816-9_6
    DOI: 10.1007/978-1-349-10816-9_6
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