price index

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Related to Paasche index: Laspeyres index

Index

A statistical measure of the value of a certain portfolio of securities. The portfolio may be for a certain class of security, a certain industry, or may include the most important securities in a given market, among other options. The value of an index increases when the aggregate value of the underlying securities increases, and decreases when the aggregate value decreases. An index may track stocks, bonds, mutual funds, and any other security or investment vehicle, including other indices. An index's value may be weighted; for example, securities with higher prices or greater market capitalization may affect the index's value more than others. One of the most prominent examples of an index is the Dow Jones Industrial Average, which is weighted for price and tracks 30 stocks important in American markets.

price index

price index

  1. a weighted average of the prices of a general ‘basket’ of goods and services produced in an economy over time, which is used in particular to indicate the rate of INFLATION. The RETAIL PRICE INDEX (RPI) is one commonly-used index, measuring the average level of the prices of final goods and services purchased by consumers. Each product in the index is weighted according to its relative importance in total consumer expenditure. A suitable base year is selected to commence the series (for example, index value 1990 = 100) and subsequent price changes are then reflected in changes in the index value over time (for example, 1999 = 200, indicating an annual rate of inflation of 10%). See INDEX-LINKED, PURCHASING POWER.
  2. a weighted average of the prices of particular classes of financial securities or commodities, for example the Financial Times 100 share index or all-share index. See SHARE PRICE INDEX.

price index

a weighted average of the PRICES of selected goods, services, commodities or financial assets measured over time. One commonly used price index is the CONSUMER PRICE INDEX (CPI), which measures the average level of the price of a general ‘basket’ of goods and services bought by final consumers. Each item in the index is weighted according to its relative importance in total consumers’ expenditure. Starting from a selected BASE YEAR (index value = 100), price changes thereafter are reflected in changes in the index value over time. Thus, taking the example of the UK Consumer Price Index (CPI), the current CPI base year is 1996 = 100; in 2004 the index value stood at 111, indicating that retail prices, on average, had risen 11% between the two dates. Such price indices can be used to measure the rate of INFLATION and as a GNP DEFLATOR. Another commonly used index of price is the Wholesale Price Index, which records the price of a ‘basket’ of goods measured in terms of wholesale prices.

In similar fashion, a SHARE PRICE INDEX such as the Financial Times Stock Exchange ( FTSE) - 100 share index is used to measure change in the price of STOCKS and SHARES over time. The TERMS OF TRADE index is used to measure the average prices of EXPORTS relative to IMPORTS over time. See PURCHASING POWER, FAMILY EXPENDITURE SURVEY, TRADE WEIGHTED INDEX.

References in periodicals archive ?
Assume, as is often the case, that the Laspeyres index is higher than the Paasche index.
Similarly, the top-level Paasche index is approximated as the weighted harmonic mean of the quantity indexes for the individual industries, where the weight for any industry i is [w.
Furthermore, a great deal of discussion on the system of national accounts has been made with regard to choice between Laspeyres and Paasche index numbers and quantity extrapolation and price deflation methods to obtain values at constant prices.
Conversely, the Paasche index uses the prices of the current period to value current- and previous-period output:
Economic theory suggests that the preferred measure of quantity change is a geometric average of a Laspeyres index and a Paasche index.
The Paasche index P, which also contributes to the Fisher, is similar to the Laspeyres, but P is based on quantity measures from the second time period:
Three-month percent change in four unchained total-compensation indexes, March 1995-June 2002 Laspeyres index Paasche index Year and quarter Percent Standard Percent Standard change error change error 1995: March 0.
A Paasche index for employment costs answers the question, "How would employment costs have risen over time if employment had always been distributed among industries and occupations as they are in the reference period?
A Paasche index, for example, uses current period quantities to aggregate across the various price relatives.
The Fisher ideal index is a geometric mean of a Laspeyres and a Paasche index.
If current-period expenditure shares are used as weights, one can calculate the Paasche index,
The benchmark-years-weighted quantity index is the (geometric) mean of two fixed-weighted indexes--a Laspeyres index, based on prices of the first benchmark year and a Paasche index, based on prices of the second.