Local Circularity of Six Classic Price Indexes

Jesus T. Pastor (jtpastor@umh.es) and C. Lovell
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Jesus T. Pastor: Centro de Investigación Operativa, Universidad Miguel Hernández, Spain

No WP012019, CEPA Working Papers Series from University of Queensland, School of Economics

Abstract: In this paper we characterize local circularity for the Laspeyres, Paasche and Fisher price indexes. In the first two cases we begin by deriving a sufficient condition for achieving circularity that establishes that at least one of two proposed equalities must hold. We end up showing that the sufficient condition is also necessary. We continue with the Fisher price index that is the geometric mean of the two, and we find a sufficient circularity condition that is a direct consequence of the corresponding sufficient conditions for its two component indexes. However we also show that, unlike its Laspeyres and Paasche components, this sufficient circularity condition for the Fisher price index is not necessary. We reach different conclusions when we consider the circularity properties of the geometric Laspeyres, geometric Paasche and Törnqvist price indexes, for which none of the proposed sufficient conditions is necessary. Throughout we distinguish local circularity, which all six price indexes satisfy, from global circularity, which none of the price indexes satisfies.

Keywords: price index; local circularity (search for similar items in EconPapers)
JEL-codes: C43 (search for similar items in EconPapers)
Date: 2019-02
New Economics Papers: this item is included in nep-mic
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https://economics.uq.edu.au/files/12943/WP012019.pdf (application/pdf)

Related works:
Chapter: Local Circularity of Six Classic Price Indexes (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:qld:uqcepa:131

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