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# Lect8 Jan

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index number ppt

index number ppt

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### Transcript

• 1. Index Numbers Econ 105
• 2. Index Numbers
• Index numbers are used to summarize many variables or numbers with one number
• The most common index numbers are price indexes
• Consumer Price Index (CPI – TÜFE)
• Producer Price Index (PPI – ÜFE)
• ISE Index
• Dow Jones Industrial Average
• 3. Index Numbers
• Index numbers may be computed for other things than prices
• quantity indexes
• quality indexes
• 4. Price Indexes
• Price indexes are used to measure the general movement of prices (inflation)
• Common types of indexes
• price relatives
• unweighted
• Laspeyres
• Paasche
• 5. Price Relatives
• Price relatives are used to find the change in price of a single item
• 6. Prices of different fruits in different years (NTL/kg)
• 7. Price Relatives for Banana and Kiwi
• From 2001 to 2002
• Banana: PR B = (0.94/0.91)*100 = 103.3
• Kiwi: PR K = (2.10/1.90)*100 = 110.5
• OR
• 8. Banana price index BASE YEAR=2000
• 9. Unweighted Price Indexes
• Price Relatives only represent the change in price of one item over time
• Unweighted Price indexes are formed by adding the prices in the year of interest and dividing by the sum of the prices in the base year
• 10. UnW Fruits Price Index Base Year=2000
• 11. Problems with Unweighted Price Indexes
• Unweighted Price Indexes have a couple of problems:
• they may be influenced by items with high prices
• items that are relatively unimportant in the goods bundle may have undue influence
• The usual solution is to weight the prices by some quantities
• 12. Weighted Price Indexes
• If the price index is to be weighted by quantities, which quantities?
• base year quantities (Laspeyres)
• current year quantities (Paasche)
• Most of the CPI’s and PPI’s use these or some variations (i.e. Fisher’s ideal PI)
• 13. Laspeyres Index
• The Laspeyres index uses base year quantities as weights
• 14. Quantities purchased (1000 kg)
• 15. Laspeyres fruit price index (BY=2000)
• 16. Paasche Price Index
• The Paasche index uses current quantities as the weighting factor
• 17. Paashe fruit price index (BY=2000)
• 18. Which is Best?
• The advantage of the Laspeyres index is that once the quantities are set they do not change. This index is easy to update.
• The advantage of the Paasche is that the quantities reflect the current production/consumption. However, it is difficult to update and may not be as easy to compare over time.
• 19. Weights – CPI (442 items)
• 20. Weights – PPI (762 items)
• 21. INFLATION IN TURKEY-CPI Nov 2008
• 22. INFLATION IN TURKEY-PPI Nov 2008
• 23. Deflating a Time Series
• Once computed, the indexes may be used to deflate a time series
• Deflating a time series is done to remove the effect of price changes so that “real” changes may be evaluated
• To deflate divide by the price index
• Deflating puts the variable into units of base year prices