BEA, Bureau of Economic Analysis; BLS, Bureau of Labor Statistics; CMS, Centers for Medicare and Medicaid Services; Laspeyres index = fixed basket, prior period weights (systematic upward bias); Paasche index
= fixed basket, current period weights (systematic downward bias); Fisher chain index = geometric mean of Laspeyres & Paasche index
In one sense this is again just a question of whether to use a Laspeyres or a Paasche index
(or something else).
The corresponding Paasche index
based on the houses in the (a, in) pair is the following:
: [mathematical expression not reproducible]
As one can see, three Index Numbers or price indexes in Fisher, Marshall-Edgeworth and Tornqvist formulas lead to the same result of inflation of 10.6%, which is placed in median position in relation to the Laspeyres and Paasche indexes
(5) In a Paasche index
framework, the magnification factor is the share of primary inputs multiplied by the ratio of the growth factor of gross output growth to the growth factor of real value added growth.
Lapeyres index overestimates the value of changes in prices and Paasche index
And on the Paasche index
, he comments: 'Since such index numbers are not really comparable because of changes in relative prices, the further apart we attempt to make them the greater the error'.
formulations ([P.sub.q]) can be used to avoid the bias that is generally reflected in Laspeyres formulations, but Paasche indices have their own weaknesses.
This fact, in conjunction with the other drawbacks mentioned above, suggests that alternatives, such as a quality-adjusted Paasche index
In order to carry out within survey incidence comparison at national, provincial and regional levels we adjust both surveys using a Paasche Index
. In addition to this in order to carry out across survey comparison, we inflate (1990-91) expenditure aggregates to (2001-02) using the GDP deflator ratio.
The Paasche index
uses the area of comparison's mean value for characteristic j as the base ([MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII]):
Rapid development in information and digital electronics technology in recent years has exacerbated the extent of the downward bias created by the fixed-base year Paasche index
The Laspeyres index uses the export shares of the base period as weights, whereas the Paasche index
uses the export shares of the current period.
One could even use a chain Paasche index
. Thus, perhaps the simplest measure of real value added in the New Zealand case would be to deflate nominal GDP by the implicit deflator of Gross National Expenditure, an index that is readily available from the New Zealand national accounts (see also Table 3).