Talk:Price index

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formula[edit]

The formula for the index should be this: http://mathworld.wolfram.com/LaspeyresIndex.html

Note the use of a "n" or "t" subindex instead of 1 and 2 (which may lead to the belief that the index is chained as it only mentions two years).

This also applies for Paasche.


About the base year: http://eaindustry.nic.in/report/fin4.htm I think we should have an article about this :-)

Formula representation[edit]

Being new to this subject, I am a bit confused by the representation of the indexes given. I assume that the values p0 and q0 are constants since they are the values in the base year. Why then have they not been taken out as a factor, i.e. moved to the left of the sigma. Not doing so gives the impression that they are not constant. Indeed, q0 can be completely removed from the Laspeyres index since it cancels out. I think these formulas should be modified or at least an explanation added as to the reasons for the curious representation.

I cleaned-up that notational mess a few days ago. —SlamDiego 05:15, 21 February 2007 (UTC)

is there no asset price index ?[edit]

This is a problem because the deflation item relates to here and deflation could also mean falling asset prices. So again is there an asset price index ? (housing + stocks + value of small companies etc.) —Preceding unsigned comment added by 82.232.235.239 (talkcontribs)

If we consider decrease of asset prices as deflation, then we would need to consider increase of asset prices as inflation. Therefore, we would be confusing asset bubbles (in houses or stocks) with the "cost of living", which is just what inflation/deflation tries to capture.
However, I do agree that an index that measures the wealth of the avg. consumer is a long overdue task.
--200.11.34.59 23:01, 9 October 2006 (UTC)


Perfect index[edit]

The sentence: "While these indices were introduced to provide overall measurement of relative prices, there is ultimately no way of measuring the imperfections of any of these indices (Paasche, Laspeyres, Fisher, or Marshall-Edgeworth) against reality."

is incorrect IMHO. There ultimately is no (way of calculating a) perfect index in a multiproduct market. This is due to the fact that there exist multiple kinds of mean (weighted, harmonic, geometric), and for building an index that aggregates changes in multiple products into one value index, choices are necessary. I'm not a mathematician but i would guess Arrow's_impossibility_theorem comes close to explaining why there exists no perfect index. —Preceding unsigned comment added by 62.59.33.94 (talkcontribs)

To measure the imperfections of any or all of these indices, one would have to quantify their failures. Proving their imperfections (in some manner analogous to the Arrow Impossibility Theorem) would not do this. —SlamDiego←T 15:35, 26 June 2007 (UTC)

Going for FA[edit]

I'd like to try to get this article to FA status. It'll probably be a slow process. Here's a rough layout. Let me know what you think.

  1. Intro
  2. History
  3. Criteria for a price index: a. axiomatic b. cost of living theory
  4. Price index formulas and comparisons
  5. Price index uses/examples
  6. Hedonic price indices

--Bkwillwm 02:10, 11 July 2007 (UTC)


Well, first, before you you begin extensively editting any technical article, you should develop a better facility with wiki mark-up. Second, this article is presently written to provide the reader with an accessible treatment, and a framework within which the fundamental deficiency of any price index can be discussed (though such discussion is not provided). That accessibility should not be diminished, nor should the framework cripple the reader's ability to think critically. (I feel compelled to make that last point because so many treatments condition the reader so that he or she will find it difficult to grasp the problem.) —SlamDiego←T 03:46, 11 July 2007 (UTC)

Diewert[edit]

A reference should be provided for Diewert. —SlamDiego←T 06:33, 12 July 2007 (UTC)

GDP deflator and GDP price index[edit]

The article says that "the GDP deflator does not assume a fixed market basket of goods and services". In context, this seems to imply that the GDP deflator does not count as a price index. Can someone make it explicit in the article whether or not this is true? In addition, I've noticed that economic sources sometimes speak of the "GDP price index". (See, for instance, http://bea.gov/bea/glossary/glossary.cfm?key_word=GDP_price_index&letter=G.) Is this an important price index, worthy of mention in the article? Is it related to the GDP deflator at all? --Ryguasu 15:16, 1 August 2007 (UTC)

A Paasche index does not assume a fixed market basket; and, as far as I know, the GDP deflator is actually just a Paasche index. (The article on the GDP deflator begs the whole question.) —SlamDiego←T 06:04, 2 August 2007 (UTC)
I think the Paasche index is still considered a fixed market basket index. Unlike the Laspeyres, which uses a set basket from a prior period, the Paasche uses a set basket from the current period. I suppose a chained Paasche index would have a new basket each period, so in this sense it's not a "fixed" basket. However, a Paasche index across several time periods is still considered fixed since one basket is used with changes across several time periods. Also, the GDP price indices (at least the PCE price index) produced by the BEA use Fisher price indices.[1]--Bkwillwm 20:01, 19 August 2007 (UTC)

Marshall-Edgeworth index[edit]

The article says that the Marshall-Edgeworth index incorporates the "arithmethic mean of the quantities". This is not, however, how I would choose to summarize the formula as currently given; I would summarize the current formula as involving the "sum of the quantities". For me, "the arithmetic mean" would be better reflected in the formula

P_{ME}=\frac{\sum [p_{c,t_n}\cdot \frac{1}{2}(q_{c,t_0}+q_{c,t_n})]}{\sum [p_{c,t_0}\cdot \frac{1}{2}(q_{c,t_0}+q_{c,t_n})]}

(Mathematically, of course, the two formulas are equal.)

My first impulse is either to switch the formula to the one I just gave, or to switch the wording to involve "sum" rather than "arithmetic mean". Both of these moves have disadvantages, though. As to changing the wording, this has the disadvantage of making the rationale for the formula less clear; at least to me, it's more obvious why it would make sense to average the quantities than why it would make sense to sum them. As to changing the formula, this would make the formula more complicated, and some people would be severely tempted to cancel out the one-halves. Any thoughts? --Ryguasu 23:15, 5 August 2007 (UTC)

Referring to the formula as involving the sum loses the intuition. Simply changing the formula leaves an unnecessary calculation in the expression. So I've done something different. :-) —SlamDiego←T 23:50, 5 August 2007 (UTC)
I think your change is an improvement. Thanks. --Ryguasu 01:19, 6 August 2007 (UTC)
I'd thought about the issue myself. Your comment made me feel licensed to make a change that I'd considered. :-) —SlamDiego←T 01:33, 6 August 2007 (UTC)

Two ways to evaluate price indexes?[edit]

The "Index number theory" section says that

There are two approaches to evaluating price index formulas. One of the approaches, referred to as either the test or axiomatic approach, evaluates the index numbers based on their mathematical properties.

The article doesn't explicitly say what the second approach is. Is there a sensible answer for what the second approach is, or is this "there are two approaches" business misleading? --Ryguasu 05:14, 6 August 2007 (UTC)

Bkwillwm, the editor who wrote that passage, seems not to have completed his programme of edits. My inclination has been to allow him some time to finish what he is or was attempting, but in the context of your query I note that more than two weeks has passed since the last edit by that account, so perhaps it is time to try to clean things up a bit. :-/ —SlamDiego←T 08:21, 6 August 2007 (UTC)

Standardizing time subscripts[edit]

Currently the article has three ways of labeling the base period vs the period of interest:

  • t and t+1
  • t_1 and t_2
  • t_0 and t_n

We should probably pick one way and stick to it. Here are some considerations:

  • The first two choices use sequential numbers, which arguably suggests that you can only compare adjacent years/quarters/whatever.
  • t_1 and t_n is a potential alternative to the third choice. It has the advantage of labeling the mth time period as t_m rather than as t_{m-1}. Is this less confusing?
  • Perhaps the choice in this article should be synchronized with choices made for other articles?

--Ryguasu 14:06, 6 August 2007 (UTC)

For now, at least, I have brought the notation of the section “Index number theory” into conformity with what had been prior convention within this article.
I favor having the article consistently use “t_0” for the base period, and “t_1”, “t_2”, &c or “t_m”, “t_n”, &c for all periods. I don't greatly object to changing the occurrences of “t_1” and “t_2” to “t_m” and “t_n”, but the idea was to give the reader a slightly more concrete example before talking willy-nilly about “x_{t_m}” and “x_{t_n}”. However, the section “Index number theory” was not in the article at that time. (I would in fact prefer to see this section moved to after “Formal calculation”, as “Index number theory” is both intrinsically less accessible and less likely to be of use to the vast majority of readers.)
I don't think that we want to write of the mth period at all. I know of no cases where we need to talk about immediately successive periods, and the indices needn't be presumed to provide an ordering; they can just be names rather than descriptions. I hope to avoid cases of “t_{m-1}” or “t_{m+1}” altogether.
SlamDiego←T 20:00, 6 August 2007 (UTC)

I just remembered something that may or may not be significant here: People will often draw graphs of price indexes where the base period is not the leftmost time period but rather somewhere in the middle of the graph. Here

US Consumer Price Index Graph.svg

the author is taking the base period to be 1982-84, rather than 1910 or whatever. So far we've agreed that t_0 should be the case period, so t_0 = 1982. This makes me want to call the leftmost spot on the graph t_{-200} or something, and the negative number bothers me a little. Maybe it shouldn't, though; negative numbers are, in fact, wonderful things. --Ryguasu 21:11, 6 August 2007 (UTC)

But if treat the indices on t as just names, then it's quite acceptable for t_0 = 1982 and t_1 = 1905 and t_2 = 2007. I'm not saying that it would be a fine thing for such labelling to occur (especially were it to occur explicitly), but there's nothing illogical about it. (And you are of course quite right that we could instead say 1905 = t_{-200}.) —SlamDiego←T 22:34, 6 August 2007 (UTC)

Article organization[edit]

SlamDiego,

Above you say

I would in fact prefer to see this section moved to after “Formal calculation”, as “Index number theory” is both intrinsically less accessible and less likely to be of use to the vast majority of readers.

My temptation is to make this move, and also to make it a subsection under a new heading, "evaluating index number formulas" or something. (The point of index number theory, after all, seems to be to evaluate indexes.) I guess this would be part of consolidating all the information about evaluating formulas in one section. (Right now it's scattered across "Formal calcuation", "Index number theory", "Practical considerations", and perhaps elsewhere.) This may or may not be a good idea.

Actually, I'm pretty unsure about how the article should be organized overall. Bkwillwm's proposed ordering is a reasonable one, though I might tweak a few things. (I might put examples earlier on, for instance.) You mention above that making the article accessible is important. I'm not sure whether this proposed order would help or hinder that. (We might, for instance, want to have two sections for evaluating index numbers, each aimed at different levels of reader?) --Ryguasu 20:40, 6 August 2007 (UTC)

I for one am comfortable with what I take to be your instincts:
  1. Some consolidation would probably be good.
  2. Consolidation should not be pedantic or dogmatic.
  3. It's not perfectly clear how best to present the material.
As to the last point, basically I think that we want some balance of two conflicting principles:
  • Matters should be presented in logical order.
  • Matters should be presented in order of decreasing accessibility.
If we could disregard logical order all together, then the way to present the article would be first stuff that a typical high-school student could grasp, then stuff that brighter kids could grasp, &c, until towards the end the material was at the level of graduate studies. :-) Of course, we cannot disregard logical order, and logical order will not simply match accessibility.
I had a sense that Bkwillwm, in placing “Index number theory” before “Formal calculation”, was seeking logical order to a rather extreme point, and that only advanced undergrads or beyond would follow the article, and most would abandon the article before the more accessible (and “practical”) section on “Formal calculation”. —SlamDiego←T 22:50, 6 August 2007 (UTC)

Why price indexes?[edit]

I'd like to eventually see some more background on why people are interested in price indexes.

First there is the historical side: What inspired people to start calculating price indexes? Why would the idea even have occurred to anyone?

Then there is a more philosophical side: Does the idea of a "general price level" even make sense? Alternatively, how meaningful can it really be try to to sum up the entire state of prices in a single number? Consider that during a period that the CPI or whatever would lead one to call inflationary, you can still have the prices of a significant number of goods -- even the majority of goods! -- on the decline. There's something a little strange about saying that the general price level is rising in these cases. (It reminds me a little of using the Arithmetic mean as a summary statistic for a bimodal distribution; it's not that the mean is meaningless (haha), but it does seem misleading to use it as the summary of the distribution without also mentioning that it's bimodal.)

--Ryguasu 00:19, 7 August 2007 (UTC)

You can find the idea of price levels aggressively attacked in Human Action by Ludwig v. Mises, and in Man, Economy and State by Murray Newton Rothbard.
I'm unsure that your historical questions can be addressed in the article without forbidden “original research”. The essential answer, though, is that quantification of things proved so wildly successful in so many areas that a presumption of much Western thought has become that quantification is always possible, always useful, and always or almost always demanded for science. Further, money appears to be a measurement if examined superficially and over brief intervals. When it is seen to fail as a measurement over longer periods of time, it is somewhat natural to look for a correction under which it will work as a measurement through time. Given the apparent properties of money, that correction would itself seem to be a scalar adjustment.
(I'm hedging right-and-left above because, ultimately, price levels are not philosophically sound.)
SlamDiego←T 01:25, 7 August 2007 (UTC)

Refugees from my big edit[edit]

I removed the following during my big edit, because I couldn't figure out where they would now go. The information here should probably go back in somewhere, but perhaps not in this exact form:

A price index can also be thought of as measuring an average change in prices. In price index formulas price changes are represented by price relatives. A price relative is found by dividing a later period price by a base period price. Different price index formulas use different methods for weighting and average price relatives. A Jevons Index uses the unweighted geometric average of price relatives while other indices use weights and arithmetic averages.
While price index formulas all use price and quantity data, they amalgamate this data in different ways. A simple price index can be constructed using various combinations of base period prices (p_0),later period prices (p_t), base period quantities (q_0, and later period quantities (q_t). Price index formulas can be framed as comparing expenditures (An expenditure is a price times a quantity) or taking a weighted average of price relatives.
The GDP deflator does not assume a fixed market basket of goods and services.

--Ryguasu 07:02, 15 August 2007 (UTC)

Feedback on my big edit?[edit]

I've made a lot of changes lately, and I'm hoping for some feedback. I've probably made some improvements, but I'm starting to feel I was a little too rash.

Things I wanted to address in my changes[edit]

Making a more accessible introduction

Giving "price index" a more particular meaning. I've gathered that, in practice, "price index" can mean all of the following: A) the time series, B) the formula used to calculate the time series, and C) the time series value at some particular point. For the purpose of the article, though, I think it's important not to confuse these ideas. I've tried (though I've still be quite sloppy with it) to use "price index" for A, "price index formula" for B, and "price index value" for C.

From an introductory perspective, the formal definitions of Laspeyres and Paasch price index formulas are a bit confusing in that they take two baskets as inputs, and proceed to ignore one of them. ("So wait, the way to compare two baskets at two prices is to just ignore one of the baskets?") I thought this idea would perhaps become more palatable if I could stress how the formula would be applied across multiple base periods. ("Yes, we ignore the 2001 basket in going from 2000 to 2001, but then we make use of it in going to 2001 to 2002. And yes, we ignore the 2002 basket in going from 2001 to 2002, but we make use of it in going from 2002 to 2003.") In retrospect, I'm not sure this actually clarifies things.

Considering "take the mean of everything in the basket" as a way to build a price index

Things that didn't go as well as I'd hoped[edit]

I've added too many words. Perhaps they need to be pruned significantly. Alternatively, maybe we need to fork the article into introductory and non-introductory versions.

There are too few equations in the text I've added. Some of this stuff is silly to explain without at least simple equations (e.g., ones without sigmas). On the other hand, the equation I did add (for taking the mean of the price of apples) is perhaps too simple to include; if you are reading the article, then perhaps you can be assumed to know how to take an average!

The discussion is tied too closely to the consumer price index. This article should be equally about producer price indexes and commodity price indexes. There should also be a comparison to other sorts of index, such as a stock market index.

As I've learned more about price indexes, I've started to think that a discussion of them should also focus on quantity indexes. After all (as Diewert says somewhere), the real goal of many price indexes is to break apart a change into price components and quantity components. (Of course, maybe this isn't always true. If your price index is "the price of a liter of gasoline", then there's not really a quantity component.)

I've not been especially clear in the wording of many things. (This I'm actually less worried about, because it's relatively straightforward to fix. The question of how to organize the article and such are more complicated.)

--Ryguasu 18:37, 19 August 2007 (UTC)

I think we may need to fork the article, perhaps into several individual articles and then recreate this article as an organizer to link to the other articles. I think there is enough in "Index Number Theory" to make an article. We already have individual Producer price index and consumer price index articles. I'm not sure if we should go so far as make articles for individual price indexes, but I think we should make a List of price index formulas, which can help us avoid cluttering the article with formulas.
Regarding your recent edits, I still would like to get this article up to featured status, so I think that requires having a fairly high standard. Additions to the article should have citations. Also, Wikipedia does not use first or second person pronouns in the article (Look at WP:Style). I don't think forking this article into "advanced" and "beginner" versions will fit with usual Wikipedia practice either, but having detailed articles on the more obscure subject matter with lower level summaries in an overview article will accomplish pretty much the same thing.--Bkwillwm 02:55, 5 September 2007 (UTC)

Un-Encyclopedic language[edit]

For example: "Now if we're only comparing two time periods, this is silly; we've forgotten about the second basket!". It's great that someone's having fun writing this but this just sounds goofy. —Preceding unsigned comment added by 71.82.130.30 (talk) 03:40, 4 December 2007 (UTC)

I largely agree. I returned to looking at this article, and parts of it read more like the transcript of an educational television show than an encyclopedia article. Also, the chatty stuff largely duplicates content that was already in the article. What we have, in effect, is style forking within a single article. I am certainly not without sympathy for the urge to make this stuff non-threatening and otherwise accessible, but the present state of things isn't satisfactory. —SlamDiego←T 13:36, 14 February 2008 (UTC)

Time to clean-up[edit]

Ten or eleven months ago Ryguasu proposed a reworking of the article. He made extensive edits. After some point, he admitted that the results were unsatisfactory, but he walked away and hasn't been back.

In my opinion, the changes that he effected need to be effectively discarded. The lede is bloated; the “Introductory treatment” is (as I have said above) an internal style-fork, adding very little conceptual content that was not already in “Formal calculation”. Instead of making the article more accessible, the changes will cause most readers to wander off, as the lede and “Introductory treatment” avoid coming to the point. —SlamDiego←T 03:03, 30 June 2008 (UTC)

I agree that the “Introductory treatment” treatment section can go. It's unencyclopedic and takes up a lot of space to get a few basic points across. It's also inaccurate, or at least confusing, since Laspeyres and Paasche are considered fixed basket indices, but are described as " variable" here. I'm trying to make a few updates to the article. For the most part, implementing some of the changes I proposed a year ago. Getting rid of the "introductory treatment" section wouldn't impact this though.--Bkwillwm (talk) 04:39, 30 June 2008 (UTC)
Okay. I have ruthlessly purged the lede, and removed that “Introductory treatment”. (← Link here in case something thereïn needs to be rescued.)
Good luck with the changes that you are seeking to effect. —SlamDiego←T 07:11, 30 June 2008 (UTC)
Looking good. The introduction is clear and to the point. --Rinconsoleao (talk) 09:27, 30 June 2008 (UTC)
I'm a little unsettled as to calling the index a weighted average. Technically, an unweighted mean is in fact just a special case of weighting (all weights are set to 1), but I know that calling these indices weighted could perturb some readers and editors familiar with old formulæ. —SlamDiego←T 22:27, 30 June 2008 (UTC)
I've replaced
normalized weighted average
with
normalized average (typically a weighted average)
to address the aforementioned concern. —SlamDiego←T 23:49, 30 June 2008 (UTC)

Notation[edit]

This article uses subscripts to indicate the time period of variables (0, 1, t). For example:

P_P=\frac{\sum (p_{c,t_n}\cdot q_{c,t_n})}{\sum (p_{c,t_0}\cdot q_{c,t_n})}

While this makes sense to me, the convention in price index literature is to use superscripts (see ILO manual example). Those who aren't familiar with the subject might confuse the superscript labels with exponents. At first I agreed with using the subscript, but now I'm leaning towards changing the article (and related articles) and adopting the convention. Any thoughts?--Bkwillwm (talk) 01:51, 1 July 2008 (UTC)

I'm opposed to superscripts, because
  1. If we use them, then we must explain them to the reader, who cannot be expected to be familiar with the various perversities conventions that prevail amongst economists.
  2. Even if we do explain them, the typical reader will have to do more work (cognitively) every time that he or she comes to a new expression. (Habits of thought simply do not change immediately upon explanation.)
SlamDiego←T 02:15, 1 July 2008 (UTC)
OT PS: I left a note for you over at Talk:List of price index formulas. —SlamDiego←T 02:15, 1 July 2008 (UTC)

Overstating inflation?[edit]

"The Laspeyres index systematically overstates inflation, while the Paasche index understates it, because the indices do not account for the fact that consumers typically react to price changes by changing the quantities that they buy. For example, if prices go up for good c, then ceteris paribus, quantities of that good should go down"

This paragraph is, at least, abstruse; and I doubt it's even correct. As inflation affects every good in the market, not every quantity of goods whose prices rise will go down, provided there's no change in relative prices and supply... And, even if quantities of depreciated good were up, Laspeyres index would not necessarily be inferior than Paasche index, as both indices weight prices using quantities both in the numerator and the denominator... I'm not pretty sure, but think it depends on each goods elasticity. A more sophisticated explanation can be found at http://mark.abrahamson.googlepages.com/PaascheLaspeyres.pdf

Guess someone who knows more than me should check it. --79.148.172.1 (talk) 19:04, 10 December 2008 (UTC)

Various people have. It's not that the claim is abstruse or incorrect, but that you're making unrecognized “simplifying” assumptions that are here inappropriate.
  • A uniform inflation in prices is a practical impossibility outside of a small, experimental setting.
  • Monetarily-denominated savings are not typically indexed to inflation; thus, a uniform increase in prices would cause some people to lose wealth and to change their purchasing patterns.
  • If, mirabile dictu, prices had initially moved together uniformly, and savings had been boosted to off-set the effects of inflation, many people would none-the-less not perceive the uniformity, nor believe reports that it were uniform. The spending habits of these people would change, with rippling effects then upon the behavior of others.
  • The provision that there would be no change in supply treats supply curves as if they are just given; in the real world, they reflect what has happened to the economics lives of producers as more than just producers.
  • The ratios of sums aren't the sums of ratios, so the point that the quantities appear both in the numerators and in the denominators is at best misleading.
  • An elasticity, of course, is a measure of responsiveness — in this context, responsiveness of quantity demanded to price. We could use elasticities to abstrusely express the assumption that people behaved atypically. But let's not. —SlamDiego←T 23:10, 10 December 2008 (UTC)
[The next two comments are copied-and-pasted from my user talk page. —SlamDiego←T 21:19, 12 December 2008 (UTC)]
Dear SlamDiego:
I'm the anonymous user (call me Antonio, I'm not enough committed to Wikipedia as to have my own account, I know this is a handicap here) who wrote this. Reading your huge list af Austrian-economics arguments against mine astonished me, being myself a strong supporter of that school of thought. So I think we have some common premises to start arguing with.
You say I'm "making unrecognized “simplifying” assumptions that are here inappropriate". But my first assumptions you criticise are all but unreckognized; I clearly state "provided there's no change in relative prices and supply". I'm not implying that there's no such a change actually; the proposition is there only for the sake of the argument. I think there are enough people out there assuming the long-run neutrality of money to make it worth to start with this.
But well, the main point is: given changes in the relative prices of the goods involved, and the subsequent changes in the consumer patterns of spending, that does not guarantee the Laspeyres index to be greater than the Paasche index. It will depend on the particular reaction of the consumer to such a change in relative prices and the purchasing power (i.e., elasticities, although I acknowledge it sounds mathletical). But this reaction cannot be determined a priori. Under certain circumstances, Paasche index could offer a higher result than Laspeyres index; in fact it will, provided that a greater proportion of the goods whose prices rose faster is now consumed. This is not "expressing the assumption that people behaved atypically", but only acknowledging that, from a priori point of view, one cannot discard certain rational behaviours.
Well, I think I have exceeded myself writing... I only was surprised by the statement "systematically overstates inflation", and thought: "well, it would depend on the consumers' particular reaction..." Anyway, after reading a lot about it, I don't think this matters so much, as it really holds than Laspeyres index usually draws as a result a higher figure than Paasche index. But well, it has nothing to do with calculation attempting to measure the ideal increase in prices, using baskets with the same utility as the original, and so on, one can find when start studying this matters...
Kind regards.
P.S: Concernig my use of the term abstruse you make fun of, I'm sorry if it just makes my text even abstruser, or makes it sound sardonic. Of course, English is not my native language, but I should have guessed abstruse sounds as pedantic in English as it does in Spanish. But, you know, one starts writing an Encyclopedia and just misses the point...
--83.49.181.184 (talk) 19:58, 12 December 2008 (UTC)
First of all, the Austrian School tends to reject the use of price indices altogether, seeing prices as ranks but not true measures. The remarks in the article, on the other hand, assume that these indices are measures, and the analysis is very much in the mainstream. So your reference to “Austrian-economics arguments” is grossly incompetent.
Second, no one claimed that you didn't recognize some of your assumptions. However, the fact that you presumed that relative prices could be unchanged in a typical scenario entails assumptions that you did not recognize.
Third, pretty much everyone much involved in the writing of the article knows that it will depend upon elasticities — even those who don't know the formal definition of “elasticity” know that it's a question of how consumers respond — but there are typical elasticities, and the article advisedly and explicitly referred and refers to the typical responses.
As to your use of the word “abstruse”, I have no problem with it. Rather, I have a problem with your getting confused by your own invocation of a technical measure. —SlamDiego←T 21:19, 12 December 2008 (UTC)
First, I don't really think my "reference to “Austrian-economics arguments” is grossly incompetent". I just say that those arguments "astonished me", simply because I didn't expected them. Of course I was not implying at all that you shouldn't use them.
Second, of course I don't explicitly recognize every assumption I make; no one, never, has done so. A text written that way would be somewhat hard to read... But any critic should rely on pointing out the inaccuracy of such assumptions, not only their not being explicit. And one just cannot deduce the mistake of the argument from the inaccuracy of the premises, if such premises are admitted only for the sake of the argument.
Third, perhaps every one "involved in the writing of the article" knows that's a question of how consumers respond. But I seriously doubt it's a fact known by everyone who reads it. And yes, the article explicitly refers to the "typical" responses, but: 1. It also says that Laspeyres index systematically overstates inflation, which can lead to confusion; 2. It also says, or seems to say, that such an overstatement depends upon the consumers' typically demanding (absolutely) less from the appreciated good, when it actually depends upon their change in the relative quantities they demand. I only meant to point out that the current phrasing is unclear, I mean, abstruse :), and not very acccurate either. It's this, and not "my own invocation of a technical measure", what gets me (and perhaps other readers) confused.
Fourth, from an Austrian approach, saying that a certain index overstates inflation is, as you know, getting it the wrong way round: 1. Because it doesn't exist any objective increment in the "level of prices" you can compare the index to. 2. Because the term "inflation" itself does mean, to Austrians, something completely different (but related) to rise in prices.
Anyway, nevermind; I only tried to contribute to make that part clearer. But now I honestly think I was excessively picky. :) --83.49.181.184 (talk) 19:38, 13 December 2008 (UTC)
First, what is grossly incompetent is exactly that you thought and think that these arguments are somehow expressions of Austrian School economics. These particular arguments are in the mainstream, the Austrian School did not introduce them in the first place, and hasn't bothered about them. How aggressively does that point have to be made to you?
Second, no one claimed that your assumptions were wrong for being implicit. Rather, it was claimed that some of your unrecognized assumptions were in error, and the fact that (in subsequent defense) you pointed to one explicit assumption as if it were your sole assumption perfectly illustrates that some of your implicit assumptions were unrecognized.
Third, the article already explicitly explains things in terms of consumer response, and it's simply obnoxious to admit that after grasping for debater's points over the need to say such a thing to the reader. Meanwhile, any readers who are as confused as you about how typical behavior can imply systematic error are just beyond practical salvation. And we will simply confuse virtually every reader if we belabor Neverneverland scenarii.
Fourth, while I certainly wouldn't object to replacing the word “inflation” with a less ambiguous term, not every member of the Austrian School is fighting to reserve the word “inflation” for artificial increase of the money supply. Austrian School economics is a body of theory, not a vernacular, let alone an English-based vernacular.
I'm sure that your intention was to make the article more clear. However, the problem with your criticism was not that it was too picky. (I'm all for making articles exactly correct and as clear as possible within that constraint.) —SlamDiego←T 03:18, 14 December 2008 (UTC)
First: 1. Your arguments certainly are Austrian School economics, notwithstanding the Austrian economists not being the only economists supporting them. I pointed this out to express: a) my surprise; b) that we could understand each other, having several grounds in common. 2. I recognize your point being clearer after [2], which I had not read (my fault). 3. Austrian economics certainly sees prices as measures, rather than "ranks"; in fact, the only measures to be used by economic agents; obviating this just illustrates some misconceptions about the role of economic calculation. 4. The Austrian School does bother about price indices (v.gr. [3], [4], [5]), and does bother about changes in prices (it is such changes, and not only price indices, what your arguments are all about). 5. I have never attacked price indices, so I hardly see how could your "Austrian-economics arguments" defend them; but, of course, no Austrian economist would never hesitate to discuss the changes in demand and supply the price indices relay on. 6. At least one Austrian economist bothers about these matters. 7. Everybody, and even Austrian economists, is allowed to coin the terms he wants, provided he warns others to result understandable; but even those who prefer not to "fight to reserve the word “inflation” for artificial increase of the money supply", clearly distinguish, if Austrian, between cash-induced and good-induced rises in prices, and so, inflation means to them something different to the plain "rise in prices". Besides, no Austrian will speak of the inflation.
Second: Of course my assumption of prices and supplies remaining unchanged was not "my sole assumption", nor have I claimed it to be so; it was the first assumption you criticised. I repeatedly have analysed the contrary, with the same consequences: Laspeyres index not being necessarily higher than Paasche index. It was a hypothesis. How aggressively does that point have to be made to you?
Third: this part of the article is simply wrong. "Laspeyres index tends to be higher than Paasche index, because the indices do not account for the fact that consumers typically react to price changes by changing the relative quantities that they buy." would be a more accurate phrasing. Anyway, the article should reflect that is the relative increment (which is an empirical, not a priori fact) in the quantities of the relatively deppreciated goods against the appreciated ones whats makes Laspeyres index greater. This is simply algebra. If you find this is wrong, or less accurate than the current wording, just let me know. I would write the paragraph myself, but I just don't feel entitled, nor in the mood. I have done my best to give my reasons politely, so I'm finished here. If you have anything else to say, I certainly will read it carefully. But I'm just fed up with arguing.
Kind regards. --83.49.181.184 (talk) 17:17, 14 December 2008 (UTC)
First: 1. No, they aren't. That passage wasn't even placed in the article in the first place by an Austrian School economist. You just made an doubly incompetent inferential leap, imputing the argument to me because I'd responded to you on the talk page, and imputing the argument to the Austrian School because I happen to have a significant association with that school. This ridiculous imputation doesn't aid understanding in the least. 3. You'd best read both a mathematics book on measure and something like v Mises's discussion of prices in Human Action before again insisting that the Austrian School sees prices as measures. 4. The question isn't whether the Austrian School bothers with prices indices in general, but whether they bother with the argument that you attribute to them. 5. Your defense of the Laspeyres index entails an argument against the Paasche index (as an analogous defense of the Paasche index would entail an attack on the Laspeyres index), whether that's immediately obvious to you or not. 6. I cannot simply be described as an Austrian School economist; I'm more pluralistic than that. Your original wrong-headed critique does not get us into Austrian School territory; we only talked about Austrian School territory insofar as you began drawing its boundaries incompetently, and I keep point out how badly you've scrawled on the map. 7. You contradict, rather than support, your original claim that the Austrian School would say that the article had things backwards. Because it is permissible to define “inflation” to refer to an increase in prices, the article doesn't get things backwards; it just uses words differently from the way that some members of the Austrian School would, albeït consonant with how other members would. (And if, indeed, no member of the Austrian School will speak of the inflation, then plainly I am not a member. Try to hit upon self-consistent propositions, would you?)
Second, the first of your assumptions that I criticized was that of a uniform increase in prices. The second was your assumption that there would be no wealth effects. The third was that people would respond to a uniform increase in prices as a uniform increase. These assumptions are required for your critique, and you evidently didn't recognize them. I suggest that you refrain from trying to make any point aggressively, as the record suggests that the point will be wrong, irrelevant, or both.
Third, while I don't have any problem with the insertion of a word such as “relative” into the explanation, it's absence no more makes the article “simply wrong” than does a failure to note an assumption that consumers are permitted to choose how much to buy, &c. The writer assumed a “real-world” context, and the fact is that the supply of goods and services doesn't generally grow at a rate such that one must be particularly concerned about the issue of relativity. (If the statement had been phrased as a mathematical proposition, then it would concern me.)
Finally, I am cautiously optimistic in response to your claim that you are fed-up with arguing. —SlamDiego←T 03:25, 15 December 2008 (UTC)

Removed claim from article[edit]

There has been a long-standing {{fact}} tag on

The results of these two methods are likely to be very similar, but it can be shown that a theoretically correct approach would be to take a weighted average of the two, with the Fisher result being given twice the weight of the Marshall-Edgeworth result. (Consider chaining into infinitesimally small time periods. Integral of exp(t) from t=0 to t=n is approximately equal to (2/3)(exp(n/2)+(1/3)((exp(n)+1)/2).)

It looks like WP:OR, and there hasn't even been a derivation on this talk page. None-the-less, I have no desire to simply erase what may be a sound passage, so I am moving it to here.

Also, before it is ever redeposited in the article, it should be properly marked-up. —SlamDiego←T 02:30, 14 December 2008 (UTC)

Not an inflation rate.[edit]

An old edit declared some of the price indices to be inflation rates. An inflation rate is an over-all change in prices divided by the corresponding elapse of time. A price index attempts to measure prices at one time reltive to those at another, corresponding only to the numerator of an inflation rate calculation. Further, the two times might be named in a manner that doesn't allow us to calculate the inflation rate. If we have the index of the price level at the start of King Bolanga's rule relative to that at the end of King Watanda's rule, then (setting aside the case where the index is 1) we cannot calculate the inflation rate unless we know how much time elapsed between these two reigns. I have therefore corrected the wording of the passage. —SlamDiego←T 08:59, 11 September 2009 (UTC)

Numéraires[edit]

"Hence, one may think of the Laspeyres index as one where the numeraire is the bundle of goods using base year prices but current quantities. Similarly, the Paasche index can be thought of as a price index taking the bundle of goods using current prices and current quantities as the numeraire."

According to algebraic definitions given in the artivle, this seems incorrect to me : Paasche index --> base year prices, current quantities Laspeyres index --> base year prices and quantities

Or am I misunderstanding something ? —Preceding unsigned comment added by 72.28.70.222 (talk) 20:56, 7 March 2011 (UTC)

Missing words in "Index Number Theory" section?[edit]

The 1st sentence in the "Index Number Theory" section appears to be missing several words:

"Price index formulas can be so what to do in terms of their mathematical properties per se." --Jackftwist (talk) 16:20, 13 July 2011 (UTC)