The Stochastic Approach to Index Numbers: Needless and Useless

von der Lippe, Peter (2014): The Stochastic Approach to Index Numbers: Needless and Useless.

Abstract

The New Stochastic Approach (NSA) – unjustly – pretends to promote a better understanding of price index (PI) formulas by viewing them as regression coefficients. As prices in the NSA are assumed to be collected in a random sample (what is particularly at odds with official price statistics), PIs are random variables so that not only a point estimate but also an interval estimate of a PI can be provided. However this often praised "main advantage" of the NSA is hardly of any use from a practical point of view. In the NSA goodness of fit is confused with adequacy of a PI formula. Regression models are mostly farfetched, stipulate restrictive and unrealistic assumptions, replicate only already known PI formulas and they say nothing about axioms satisfied or violated by a PI.

• Item Type: MPRA Paper
• Language: English
• Keywords: Index theory. price index, Inflation measurement, regression, methodoloy of collecting macroeconomic data
• Subjects: C - Mathematical and Quantitative Methods > C4 - Econometric and Statistical Methods: Special Topics > C43 - Index Numbers and Aggregation; C - Mathematical and Quantitative Methods > C8 - Data Collection and Data Estimation Methodology ; Computer Programs > C82 - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data ; Data Access; E - Macroeconomics and Monetary Economics > E0 - General > E01 - Measurement and Data on National Income and Product Accounts and Wealth ; Environmental Accounts; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation

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von der Lippe, Peter, Recurrent Price Index Problems and Some Early German Papers on Index Numbers, Notes on Laspeyres, Paasche, Drobisch, and Lehr, Jahrbücher für Nationalökonomie und Statistik (Journal of Economics and Statistics), vol. 233/3 (2013), pp. 336-366.