DATA INTERPRETATION

Data interpretation

Data interpretation

Models Interpretation

In defining an index numBer, always start with a ratio of sums. EaCh component of each sum is a price times a quantity. The number of such price/quantity Products is equal to the number of goods or services included in the index.



The next step is to insert dates for the “?” marks. If you want a Price Index, make sure only the prices in the numerator and denominator correspond to different dates. Quantities have the same date: earlier in both numerator and denominator, for a Laspeyres Index; later, for a Paasche Index. Therefore:

Laspeyres Price Index: Paasche Price Index:

If you want a Quantity Index, make sure only the quantities in the numerator and denominator correspond to different time periods (Schreyer, 2008, 74). Prices have the same date: earlier in both numerator and denominator, for a Laspeyres Index; later, for a Paasche Index.

Laspeyres Quantity Index: Paasche Quantity Index:

Data Analysis

The Laspeyres and Paasche price indices are both measures of the overall price level, calculated as the (nominal - i.e. using actual market prices) cost of a representative bundle of goods during a particular time period (we often think of time being split up into discrete periods in economic theory). There is a difference between the two indices if the bundle of goods chosen changes between two periods, because if we want to compare the price level in the two periods then we must use the consumption bundle during one of the periods to work out the weightings for the prices of the different goods in the representative bundle. If we choose the earlier, or base, period b, we have the Laspeyres price index. If we choose the later period t, after prices and consumer behaviour have changed, we have the Paasche price index.

The Paasche price index is therefore the ratio of expenditure at period t to expenditure at period b using the new consumption bundle at period t to calculate the weightings. The Laspeyres and Paasche price indices are both measures of the overall price level, calculated as the (nominal - i.e. using actual market prices) cost of a representative bundle of goods during a particular time period (we often think of time being split up into discrete periods in economic theory) (Triplett, 2004, 55).

There is a difference between the two indices if the bundle of goods chosen changes between two periods, because if we want to compare the price level in the two periods then we must use the consumption bundle during one of the periods to work out the weightings for the prices of the different goods in the representative bundle. If we choose the earlier, or base, period b, we have the Laspeyres price index. If we choose the later period t, after prices and consumer behaviour have changed, we have the Paasche price index. The Paasche price index is therefore the ratio of expenditure at period t to expenditure at period b using the new consumption bundle at ...