The Stochastic Approach to Index Numbers: Needless and Useless

Peter von der Lippe

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Index theory. price index; Inflation measurement; regression; methodoloy of collecting macroeconomic data (search for similar items in EconPapers)
JEL-codes: C43 C82 E01 E31 (search for similar items in EconPapers)
Date: 2014-12-14
New Economics Papers: this item is included in nep-ecm and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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