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Brian Graf

to satisfy one or two key tests may be considered sufficient grounds for rejecting an index. Average of price relatives See Carli index . Base period The base period is usually understood to mean the period with which all the other periods are compared. The term, however, has different meanings in different contexts. Three types of base periods may be distinguished: The price reference period —the period that provides the prices to which the prices in other periods are compared. The prices of the price reference period appear in the denominators of

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periods of time are intended to indicate the average proportionate, or percentage, change in prices from this price reference period. Price indices can also be used to measure differences in price levels between different cities, regions or countries at the same point in time. 1.2 Much of this manual and the associated economic literature on price indices is concerned with two basic questions: Exactly what set of prices should be covered by the index? What is the most appropriate way in which to average their movements? These two questions are

Brian Graf

a new one and explores whether interim or partial weight updates might be implemented in the period between major surveys such as a Household Budget Survey (HBS). Calculating a Chain Index 9.2 Assume that a series of fixed weight Young indices has been calculated with period 0 as the price reference period and that in a subsequent period, k, a new set of weights has to be introduced in the index. The new set of weights may, or may not, have been price-updated from the new weight reference period to period k. A chain index is then calculated as

Brian Graf

Carli should be avoided because it has a known, and potentially substantial, upward bias. 4 8.20 Table 8.1 shows the comparison of the Dutot and Jevons indices using the monthly average prices. The first calculation for the Dutot index uses the average prices in the long-term formula (direct approach) where each month’s ( t ) average is compared to the initial base price (0) (that is, the base price reference period). The Dutot index is also calculated using the short-term relatives (chained approach) where the month-to-month changes in average prices are used

Brian Graf

should be valued as a fixed additive sum. Price Reference versus Current Period Adjustment 6.23 Two variants of the approaches to quality adjustment are to make the adjustment either to the price in the price reference period or to the price in the current period. For example, in the overlap method, described previously, the implicit quality-adjustment coefficient was used to adjust p m t t o p n * t . An alternative procedure would have been to multiply the ratio p m t + 1 / p n t + 1 by the price of the replacement variety p n t + 2 to obtain the

Brian Graf

selecting a sample of customers from each category of customer, to reflect the structures of the tariffs of the corresponding service providers. For instance, a sample of customers and their bills might be drawn from low-, medium-, and high-volume consumers of the product. The resulting index measures the cost of the current billing period’s consumption (normally over a month or a quarter) at prices charged in the index period compared with prices charged in the price reference period. The sample of bills approach has a number of differences compared with the consumer

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tests. The tests throw light on the properties possessed by different kinds of indices, some of which may not be obvious. Four basic tests illustrate the axiomatic approach. Proportionality Test : If all prices are λ times the prices in the price reference period (January in the example), the index should equal λ. The data for July, when every price is 10 percent higher than in January, show that all three direct indices satisfy this test. A special case of this test is the identity test, which requires that if the price of every product is the same as in the

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the requirements of the implementation group on quality adjustment and sampling, established by Eurostat. Other key recommendations With the next CPI reweight: (i) revalue the annual weights to align with the price reference period, and (ii) link the new reweighted index to the present 2000-year based index at December 2003, at