INDEX

Introduction 1

Index numbers 2

Classification of index numbers 4

Property of Simple Index Numbers 6

Complex index numbers 8

Unweighted complex indexes 9

Weighted complex indices 11

Properties of Index Numbers 12

Price indices 14

Unweighted complex price indices 15

Examples of index number calculations 17

Recommendations and conclusions 27

Bibliography 29
 Introduction

Index numbers arise from the need to make comparisons based on

time or space, both separately and in groups in order to be able to carry out

these comparisons it is necessary to develop series of economic indicators, being the

index numbers are part of them, so we can say that index numbers

we use it as a technique to analyze and compare data at different times

of time or of space.

The theory of index numbers has been developed primarily for the study

of price variations, trying to measure the general level of prices and

inversely, the purchasing power of money.

However, the applicability of these indicators is not limited to the study of prices,

utilized in all fields of human activity that can be observed and

statistically quantify. In economics, they have a great use, with numbers existing

salary index, production, prices, foreign trade, etc.

Index Numbers

An index number is a statistical measure designed to highlight changes in

a variable or a group of variables related to time, situation

geography income or any other characteristic. To the collections of index numbers in

A series of indexes is called when it comes from different years and places.

Index numbers are the basic tool for synthesizing statistics.

economic in such a way that the formulas used allow to express and describe, by

for example, the economic growth of a country or the inflation rate of an economy, and

also for making international comparisons. If different formulas are used,

the results differ and the comparisons are not valid. Hence the importance of

to know the formulas that are used, and what the countries and international organizations

promote common practices that harmonize and standardize measurements. Although the

index numbers are linked to macroeconomics, their theoretical foundation is based on

microeconomics. The best practices and the microeconomic theoretical support are

are disclosed in the manuals compiled by various international organizations, such as the

United Nations Statistics Division, the International Monetary Fund (IMF), the

World Bank, the International Labour Organization (ILO), the Statistical Office of

the European Union (Eurostat) and the Organisation for Economic Co-operation and Development

(OECD).
Index numbers can have different nature:

A) STATISTICAL NATURE, when obtained without considering the possible

functional relationships of the magnitudes under study, and

B) FUNCTIONAL NATURE, when they are obtained assuming a functional relationship

among the values of the variables and their environment.

The theory of index numbers has been developed, fundamentally, for the study

of price variations, trying to measure the general level of prices and

inversely, the purchasing power of money. However, the applicability of these

indicators are not limited to the study of prices, being used in all fields of the

human activities that can be observed and quantified statistically.

Based on statistical nature, a classification could be established as follows

way
CLASSIFICATION OF THE INDEX NUMBERS

SIMPLE INDEX NUMBERS

Simple index numbers refer to a single item or concept, which translates

to work with a unidimensional variable. They are simple relationships or percentages between the

values of an article or concept corresponding to two times or places that are desired

compare oneself.

Then given a simple magnitude Xi, its simple index number will be in period t the

next

Simple index numbers are widely used in the business world.

the study time, among other variables, the productions and sales of the different

articles that manufacture and launch to the market

Most common simple indices (relative price, relative quantity, relative value)

Relative price, of a nest as the ratio between the price of a good in the current period, and the

price of the same in the base period

Relative amount, of nest as the ratio between the quantity consumed (or produced) of

certain product in the current period, and the quantity consumed (or produced) of it in

the base period,

Relative value, of nest as the ratio between the value of a certain product in the period

actual, and the value of it in the base period, where the value of a good is given in a

period as the product of the price of that good by the quantity produced (or consumed),
Property of Simple Index Numbers

Simple index numbers have some properties that we will mention.

some in this research

Circular property

We consider three moments in time (0, t', t) which satisfy the relationship: 0 < t' < t.

We take the magnitude H which takes values from the moment t = 0, 1,...t',...t,...T

The circular property tells us that:

Chaining property

We consider three instants of time (0, t', t) which satisfy the relation: 0 < t' < t.

We take the magnitude H, from the moment t = 0,1,...t'...t until t = T.

Product property

Let R be a complex magnitude that is obtained as the product of two simple magnitudes.

F and K. R takes values from t = 0, 1,..., T.

Property of the quotient

If we have a complex magnitude R that is obtained as a quotient between two magnitudes

simple F and K, it is verified:

Investment Property The product of two indices in which investments have been made

base and comparison periods is equal to the unit:

Property of Homogeneity If the magnitude varies in proportion 1 + K, and the period is fixed

in comparison, the index number also varies in the same proportion

Complex index numbers

Complex index numbers refer to several articles or concepts at once.

(complex magnitudes) and their evolution in space and/or time. Let's assume that a

the company has three products A, B, and C; each of which has its corresponding

price (PA, PB, and PC). If we were interested in the evolution of each price individually,

we would find the simple indices of PA, PB, and PC, but if what we want to analyze is the

evolution of the company's general price, we will have to take into account the evolution

combined of all of them.

The objective we propose next is to synthesize into a single index the

information provided by the simple indices of each of the different goods, to

which we will refer to in two ways:

Assuming that each product has the same relative importance within the company,

In this case, we would calculate the UNWEIGHTED COMPLEX INDICES.

Assuming that each product has different relative importance within the company.

We would calculate the WEIGHTED COMPLEX INDICES.

Unweighted complex indices

They arise when studying the evolution of a magnitude that has more than one component.

and they are all assigned the same importance or relative weight. Thus, for example, the

composite magnitude can be the price of a set of dairy products (cheese,

milk and butter) establishing the hypothesis that the three components have the

same importance or weight in household consumption. As in reality the

components of a complex magnitude have different weights, these indices have little

use in the world of economics.

Its preparation poses no difficulty. Let's assume that the complex magnitude that

we are interested in having N components (1, 2, ..., i, ..., N). First, the following would be developed

simple indices of each component I1t, I2t,..., Iit,..., INt; with the complex index without

ponder the simple arithmetic mean of all of them.

Weighted complex indices

They arise when the components of the complex magnitude that is being studied are

assigns a specific weighting coefficient wi to each one. This type of number

indices are those that are really used in the analysis of the evolution of phenomena

complexes of economic nature: consumer price index (CPI), index of

industrial production (IPI), hotel price index (IPH), etc.

Its aim is to solve the problems posed by complex indices without

ponder. What importance does weighting have? If we want to obtain an index of

consumer prices should, 1st We determine the elements (magnitudes) that

they make up the usual consumption of a family, 2nd We find out the prices of those

elements. 3rd We investigate the relative importance (wi) of each element in consumption

family habit.
Properties of Index Numbers

We will list some of the properties

1. Existence: the index number must be specified as a real and finite value different from

zero.

2. Identity: if the base and comparison periods are matched, the index is equal to

the unit is expressed in so many per one or hundred if it is in so many per 100

3. Investment: The product of the indices in which the base periods have been invested.

and of comparisons is equal to the unit.

4. Circular: It is a generalization of investment; if we generalize three periods T´,

T, o
5. Proportionality: If the magnitude varies in proportion 1 + K and the period is fixed

comparison, the index number also varies in the same proportion

PRICE INDICES

Price indexes are classified according to the following map.

The magnitude price of the only component of the simple index i is designated by p, then the

the simple price index expression for period t will be as follows.

Unweighted complex price indices

The complex index can be defined using two criteria: that of the arithmetic mean.

simple that leads us to obtain the Sauerbeck index or the aggregate mean

simple by which we build the Bradstreet-Dutot index. We proceed to detail its

definition.

Arithmetic mean index of simple indices or Sauerbeck

If we have N components of the composite price index, we must obtain, first

place, the simple indices, for each of the prices of the items i. The index of

Sauerbeck will be the unweighted arithmetic mean of them.

Index of simple aggregate mean or Bradstreet-Dutot

It is only used in the preparation of index numbers. In the Sauerbeck index,

it obtains an arithmetic mean of simple relative price indexes, since the indexes

simple are the price ratios of the comparison periods with the base. The average

aggregative is defined as the quotient between the simple arithmetic mean of the N prices in

the comparison moment t and the same average in period 0:

Laspeyres Index

Prices It is the weighted arithmetic mean of the simple price indices, being the

weighting coefficient for article i, wi = pi0qi0, that is, the value of the quantity

consumed from item i in the base period with prices from that period. It is a measure

of the price variation for fixed quantities (base year).

Quantities In a similar way, the Laspeyres index for quantities is defined as a

measure of the variation of quantities at fixed prices (base year).

Paasche Index

It is defined as the weighted harmonic mean of the simple indices, being the

weighting coefficients, wi = pitqit, that is, the value of the quantity consumed of

Article I in the current period with current prices.

EXAMPLES OF INDEX NUMBER CALCULATIONS

EXAMPLES OF INDEX NUMBERS

Examples of Index Numbers applying the properties

Find the simple indices with respect to the period t=0.

Check that the circular property and the chaining property are fulfilled.

Interpret some of the indices.

(A) Circular property.

(B) Chaining property
Examples of unweighted complex indices
Geometric Mean of Simple Index
Weighted complex indices
Examples of Price Index

The prices expressed in current euros of the rooms of a certain hotel,

In the period from 2005 to 2010, they have been: 75, 77, 85, 89, 97, and 105. Obtain the series of numbers.

simple indices of the product price magnitude using 2005 as the base period.

If we observe the series of simple index numbers, we see the evolution of the magnitude.

Throughout the period, it is observed that from 2005 to 2006 the price has increased by 2.7 percent.

100, from 2005 to 2008 an 18.7 percent and throughout the period a 40 percent. As has been

As previously discussed, the indices, being defined by a quotient, do not depend on the

units of measurement
Arithmetic mean index of simple indices or Sauerbeck index
Simple Aggregative Average Index or Bradstreet-Dutot Index

Obtain the Bradstreet-Dutot index for the data using 2006 as the base period

Laspeyres Index
Paasche Index
RECOMMENDATIONS AND CONCLUSIONS

Through the Index Numbers, we will be able to know and study the phenomena.

socioeconomic at different levels of complexity thanks to this tool we can

develop analysis such as factor analysis at the level of inflation, at the level of development

to be able to define it as measures and statistical ways to assess the magnitude over time

of time.

We can conclude that index numbers are a great tool of great versatility.

that can be applied to various fields such as microeconomics, macroeconomics, so

como el estudio de desarrollo social y demás campos que nos ayudan a poder valorizar y

to give value to studies in order to generate responses and measures to be taken

respectively.
BIBLIOGRAPHY

Statistics I Book CERASA 2016

Commercial Statistics I book [Link]

Statistics book from ULPGC