THE SUITABILITY OF THE DIVISIA INDEX FOR THE MEASUREMENT OF ECONOMIC AGGREGATES

Dan Usher

Review of Income and Wealth, 1974, vol. 20, issue 3, 273-288

Abstract: This paper considers the properties of the Divisia, or chain‐link, index, as they relate to the argument that this is the most appropriate index for use in studying the sources of economic growth. The great advantage of the Divisia index is alleged to be its “accuracy”, that is, its capacity to combine time series of prices and quantities to give a true reflection of the height of a utility or production function over time. The paper shows that there are circumstances where the confidence in the accuracy of the Divisia index is justified, but that the conditions required are very restrictive and typically do not obtain in the contexts where the Divisia index is used. Misplaced confidence in the Divisia index has led to errors of interpretation that might otherwise have been avoided, and has given rise to a distorted view of the process of economic growth.

Date: 1974
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https://doi.org/10.1111/j.1475-4991.1974.tb00923.x

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Working Paper: The Suitability of the Divisia Index for the Measurement of Economic Aggregates (1973)
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