Comparing the Edgeworth–Marshall index and the Fisher index for the system of national accounts

Kam Yu

SN Business & Economics, 2023, vol. 3, issue 1, 1-12

Abstract: Abstract National accountants in the U.S. and Canada have switched to a chained Fisher quantity index. This creates some controversies because the Fisher index is not additive. Some authors have proposed the use of the additive Edgeworth–Marshall (ME) index instead. This article compares the Fisher quantity index with the ME index using the test approach and economic approach. Both indices have strong economic justification for their uses. Shortcomings of the ME index include failing the factor reversal test and potentially leading to negative values of constant dollar outputs in some sectors. The advantage of the Fisher index is that the price index and the corresponding quantity index use the same formula. A new theorem shows that additivity and factor reversal are mutually exclusive. Based on our findings we recommend the continual use of the Fisher index.

Keywords: Quantity index; GDP deflator; Additivity (search for similar items in EconPapers)
JEL-codes: C43 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s43546-022-00413-0

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