Glossary of Terms

Accrual accounting otherwise combined, to obtain price indices for higher- level aggregates. The recording of the value of a purchase or other transaction at the time the obligation to pay is incurred, as ASYCUDA distinct from the time payment is made. For an XPI and an MPI, this means that the prices of goods are gener- Automated System for Customs Data. A computer sys- ally recorded at the time of shipment and the prices of tem designed by UNCTAD (United Nations Confer- services at the time of delivery. ence on Trade and Development) for the immediate verification of customs declarations. It ensures that Additivity declarations contain all information required, including quantity information, in order to receive customs At current prices, the value of an aggregate is equal clearance. The system also validates customs values to the sum of its components. Additivity requires this by matching the unit values on the declarations against identity to be preserved for the extrapolated values those for a predetermined list of commodity prices. of the aggregate and its components when their current values in some period are extrapolated using a Asymmetric index set of interrelated quantity indices; or, alternatively, when the current values of the aggregate and its com- An index that does not treat the two periods being ponents in some period are deflated using a set of compared in a symmetric or balanced way by attaching interrelated price indices. See also “consistency in equal importance to the price and value data in both aggregation.” periods. For example, the Laspeyres price index, the Paasche price index, and the Palgrave price index are Aggregate asymmetrically weighted price indices: the Laspeyres because it uses the value shares of the base period, the A set of transactions relating to a specified flow of Paasche and Palgrave because they use the value shares goods and services, such as the total exports produced of the current period. by resident establishments in a given period or the total imports of intermediate inputs made by resident estab- Axiomatic approach lishments in a given period. The term “aggregate” is also used to mean the value of the specified set of The approach to index number theory that determines transactions. the choice of index number formula on the basis of its mathematical properties. A list of tests is drawn up, each test requiring an index to possess a certain prop- Aggregation erty or satisfy a certain axiom. The choice of index is The process of combining different sets of transactions made on the basis of the number of tests satisfied. Not to obtain a larger set of transactions. The larger set is all tests may be considered equally important, and the described as having a higher level of aggregation than failure to satisfy certain key tests may be considered the sets of which it is composed. The term “aggrega- sufficient grounds for rejecting an index. An important tion” includes the process of adding the values of lower- feature of the axiomatic approach is that prices and level aggregates to obtain higher-level aggregates. In quantities are considered as separate variables and no the case of price indices, it means the process by which account is taken of possible links between them. Also price indices for lower-level aggregates are averaged, or known as the “test approach.”

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Base period and other goods not elsewhere classified. The categories and subcategories of the classification are defined The base period is generally understood to be the period in terms of SITC Rev.3 basic headings. with which other periods are compared. However, the term is not a precise one and may be used to mean Bias rather different things. Three types of base period may be distinguished: A systematic tendency of the calculated index to diverge from some ideal or preferred index. Bias can arise for a • The price reference period—the period that pro- number of reasons, including the design of the sample vides the prices to which the prices in other periods selected, the price measurement procedures followed, are compared. The prices of the price reference the data processing methods used, and/or the index period appear in th e denominators of the price rela- number formula employed. tives used to calculate the index. • The weight reference period—the period, usually Bilateral price index one or more years, whose values serve as weights The value ratio decomposition approach to index num- for the index. When the values are hybrid (that is, bers involves breaking down the value ratio between the quantities of one period are valued at the prices two periods into two numbers: one representing the of some other period), the weight reference period is price change between the two periods and the other the period to which the quantities refer. representing the quantity change between the two peri- • The index reference period—the period for which ods. The resulting price index is called a “bilateral the index is set equal to 100. price index.” “Bilateral” refers to the assumption that the price index depends only on price and quantity data The three reference periods may coincide but frequently pertaining to the two periods being compared. do not. Book price Base-weighted index See “list price.” See “Laspeyres price index.” Bouncing Basic price The fluctuation or oscillation of prices up and down in The amount received by the producer from the pur- a persistent pattern. chaser for a unit of good or service produced as output. It includes subsidies on products and other taxes on BPM6 production. It excludes taxes on products, other subsidies on production, supplier’s retail and wholesale Balance of Payments and International Investment margins, and separately invoiced transport and insur- Position Manual, Sixth Edition. An internationally ance charges. Basic prices are the prices most relevant agreed set of accounts summarizing the economic for decision making by suppliers. relationships between residents of an economy and the rest of the world. The accounts provide an integrated Basket framework for recording an economy’s international current, capital, and financial account transactions, and A specified set of quantities of goods and services for the financial assets and liabilities of its residents vis-à- which prices are collected for the purpose of compiling vis nonresidents. See also “EBOPS.” an index. Business register Basket price index A register or list of enterprises or establishments See “Lowe index” and equation (G.1) in the Appendix. involved in productive activities that is maintained by countries, often by their national statistical institutes, BEC to provide the frame for carrying out their economic Classification by Broad Economic Categories. An censuses and surveys. Such registers usually con- internationally agreed classification that groups com- tain information on location, economic activity, size modities according to their main end use: consumption (employment, payroll, annual production, or turnover), goods, intermediate goods, capital goods, dual-purpose contact persons, links with tax and other administra- goods (motor spirit, passenger motor cars), and military tive registers, etc.

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Carli price index Circularity An elementary price index defined as the simple, An index number property such that the algebraic product or unweighted, arithmetic average of the current to of the price index comparing period i with period j and base period price relatives. the price index comparing period k with period j is equal to the price index that compares period k directly with pt P __1 __ period i. The property is also known as “transitivity.” C n p0 When the axiomatic approach is used, a price index num- Carry forward ber may be required to satisfy the “circularity test.” The situation in which a missing price for a product in COLI the current period is imputed as being equal to the last price observed for that product. Cost of living index. An index that measures the change between two periods in the minimum expenditures that Chain index would be incurred by a utility-maximizing consumer, whose preferences or tastes remain unchanged, in order An index number series for a long sequence of peri- to maintaining a given level of utility (or standard of ods obtained by linking together index numbers span- living or welfare). Because consumers may be expected ning shorter sequences of periods, each with their own to change the quantities they consume in response to weights. The linking may be made as frequently as the changes in relative prices (the “substitution effect”), weights change and the data permit, or at specified the COLI is not a fixed-basket index. COLIs cannot be intervals, such as every five or ten periods. Each link in directly calculated but may be approximated by super- the chain consists of an index comparing each period lative indices. A conditional cost of living index is one with the previous period. See also equation (G.6) in the that assumes that all the factors that may influence the Appendix. consumer’s utility or welfare other than prices (such as the physical environment) do not change. Chain linking Splicing together two consecutive sequences of price Commensurability test indices that overlap in one or more periods. When the See “invariance to changes in the units of measurement two sequences overlap by a single period, the usual test.” procedure is simply to rescale one or another sequence so that the value in the overlap period is the same in Commodity both sequences and the spliced sequences form one continuous series. More complex methods may be used A generic term for a good or a service, interchangeable to link indices that overlap by more than one period. with the term “product.” Commodities or products are Also known as “chaining” or “linking.” the result of production. They are exchanged and used for various purposes: as inputs in the production of Chain linking bias other goods and services, as final consumption, or as investment. Individual sampled commodities or prod- See “drift.” ucts are often described as “items.” Characteristics Commodity reversal test The physical and economic attributes of a good or A test under the axiomatic approach that requires that, service that serve to identify it and enable it to be for a given set of products, the price index should classified. remain unchanged when the ordering of the products is changed. C.i.f. price Cost, insurance, and freight price. The price of a good Comparison period delivered at the customs frontier of the importing coun- See “current period.” try or the price of a service delivered to a resident. It includes any insurance and freight charges incurred to Compensation of employees that point. It excludes any import duties or other taxes on imports and trade and transport margins within the The total remuneration, in cash or kind, payable by importing country. enterprises, to employees in return for work done by the

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latter during the accounting period. Includes employ- may have to be less than the scope or domain of the ers’ actual and imputed social contributions. index. In other words, the set of goods and services covered by the index may be narrower than the set Consistency in aggregation of goods and services that the compliers of the index would prefer to include if it were feasible. An index is said to be consistent in aggregation when the index for some aggregate has the same value whether it is calculated directly in a single operation, without CPA distinguishing its components, or it is calculated in two Statistical Classification of Products by Activity within or more steps by first calculating separate indices, or the European Economic Community. The classification subindices, for its components, or subcomponents, and of goods and services by originating activity favored then aggregating them, the same formula being used at by the European Union. Originating activities are those each step. See also “additivity.” defined by NACE.

Constant elasticity of substitution index CPC A family of price indices that allows for substitution Central Product Classification. An internationally between products. The Lloyd-Moulton index is such agreed classification of goods and services based on an index. the physical characteristics of goods or on the nature of the services rendered. Each type of good or service Constant prices test distinguished in the CPC is defined in such a way that See “identity test.” it is normally produced by only one activity as defined in ISIC. Constant quantities test CPI See “fixed-basket test.” Consumer price index. A monthly or quarterly price Consumption of fixed capital index compiled and published by an official statistical agency that measures the changes in the prices of The reduction in the value of the fixed assets used in consumption goods and services acquired or used by production during the accounting period resulting from households. Its exact definition may vary from country physical deterioration, normal obsolescence, or normal to country. accidental damage.

Continuity CSWD index The property whereby the price index is a continuous Carruthers, Sellwood, Ward, Dalén index. A geometric function of its price and quantity vectors. average of the Carli index and the harmonic mean of price relatives index. Contract escalation _ P CSWD PC P HR See “indexation of contracts.”

Contract price Current period A general term referring to a written sales instrument In principle, the current period should refer to the most that specifies both the price and shipment terms. A con- recent period for which an index has been computed or tract may include arrangements for a single shipment or is being computed. However, the term is widely used to multiple shipments. Usually it covers a period of time in refer to any period that is compared with the base period excess of one month. Contracts are often unique in that or index reference period. It is also widely used simply all the price-determining characteristics in one contract to mean the latter of the two periods being compared. are not repeated exactly in any other contract. The exact meaning is usually clear in the context. Also referred to as the “comparison period.” Coverage Current-weighted index The set of goods and services whose prices are actually included in the index. For practical reasons, coverage See “Paasche price index.”

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Cutoff sampling It is a symmetric index and a pseudo-superlative index. A sampling procedure in which a predetermined threshold is established with all units in the universe P __1 P P at or above the threshold being included in the sample DR 2 L P and all units below the threshold being excluded. The threshold is usually specified in terms of the size of Dutot index some known variable, the largest sampling units being An elementary price index defined as the ratio of the included and the rest given a zero chance of inclusion. unweighted arithmetic average of the prices in the cur- For XMPIs, size is usually defined in terms of export rent period to the unweighted arithmetic average of the or import values or shares. prices in the base period. Deflation __1 p t ______n The division of the current value of some aggregate by PD __1 0 a price index—described as a “deflator”—in order to n p revalue its quantities at the prices of the price reference period or to revalue the aggregate at the general price EBOPS level of the price reference period. Extended Balance of Payments Services Classification. Discount An extension to the BPM6 classification of international trade in services. It is primarily a product classification A deduction from the list or advertised price of a good and as such is defined in terms of the CPC. However, or service that is available to specific customers under in line with the BPM6, it includes some classes that are specific conditions. Examples include cash discounts, not compatible with the CPC or with other international prompt payment discounts, volume discounts, trade dis- product classifications such as the CPA. It also includes counts, and advertising discounts. various supplementary items and alternative groupings that are intended to provide additional information on Divisia approach the transactions recorded in the system. A price or quantity index that treats both prices and quantities as continuous functions of time. By differentiation Economic approach with respect to time, the rate of change in the value of the aggregate in question is partitioned into two compo- The approach to index number theory that assumes nents, one of which is the price index and the other the that the quantities are functions of the prices and not quantity index. In practice, the indices cannot be calcu- independent variables. The observed price and quantity lated directly, but it may be possible to approximate them data are assumed to be generated as solutions to various by chain indices in which indices measuring changes economic optimization problems. Also known as the between consecutive discrete periods are linked together. “microeconomic approach.”

Domain Economic territory (of a country) An alternative term for the scope of an index. See The economic territory of a country consists of the “scope” and “coverage.” geographical territory administered by a government within which persons, goods, and capital cir- Drift culate freely. It includes (1) the air space, territorial waters, and continental shelf lying in international A chain index is said to drift if it does not return to waters over which the country enjoys exclusive rights unity when prices in the current period return to their or over which it has, or claims to have, jurisdiction levels in the base period. Chain indices are liable to with respect to the right to fish or to exploit fuels or drift when prices fluctuate or “bounce” over the periods minerals below the sea bed; (2) territorial enclaves in they cover. Also known as “chain linking bias.” the rest of the world (clearly demarcated areas of land that are located in other countries and that are used Drobisch price index by the government for diplomatic, military, scientific, A price index defined as the arithmetic average of the or other purposes with the formal political agreement Laspeyres price index and the Paasche price index. of the government of the country in which they are

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physically located); and (3) any free zones, or bonded Error warehouses or factories operated by offshore enter- The difference between the observed value of an index prises under customs control (these form part of the and its “true” value. Errors may be random or sys- economic territory of the country in which they are tematic. Random errors are generally referred to as physically located). “errors.” Systematic errors are called “biases.”

Economically significant prices Establishment Prices that have a significant influence on the amounts An enterprise, or part of an enterprise, that is situated in producers are willing to supply and on the amounts a single location and in which a single nonancillary pro- purchasers wish to buy. ductive activity is carried out or in which the principal productive activity accounts for most of the value added. Editing Also referred to as “LKAU” or “local kind of activity The process of scrutinizing and checking the prices unit.” An establishment should be capable of providing reported or collected for the price index. Checks may basic accounting information on the prices and quantities be carried out by computers using statistical programs it produces and the inputs it uses during an accounting written for the purpose. See “input editing” and “output period. This is often not the case in practice, particularly editing.” when an establishment is one of a number of production units belonging to an enterprise. In these circumstances, Elementary aggregate an establishment is defined either as the enterprise itself or in terms of the smallest subsets of production units for The lowest level of aggregation for which value data are which the enterprise (or the subsets themselves) is able available and used in the calculation of the price index. to supply accounting information on inputs and outputs The values of elementary aggregates are used to weight for the time period under consideration. the elementary price indices associated with them to obtain indices for higher-level aggregates. Elementary Evolutionary goods aggregates usually cover a relatively narrow range of goods or services. They also serve as strata for the Goods that are similar to or extensions of existing goods. sample of products selected for pricing. They are typically produced on the same production line using production inputs and processes that are largely the Elementary item same as those used to produce existing goods. It is possi- One of the individual goods or services that make up ble, at least in theory, to adjust for any quality differences an elementary aggregate. An individual good or service between an evolutionary good and an existing good. selected for pricing from among the various goods or services comprising an elementary aggregate. Often Explicit quality adjustment referred to as an “item.” A direct estimate of how much of the change in price of a product is attributable to changes in its physical or Elementary price index economic characteristics. It requires an evaluation of A price index for an elementary aggregate. Value the contributions of the differences in particular char- weights cannot usually be assigned to the price relatives acteristics to the differences in the observed prices of for sample products within an elementary aggregate, two products. It includes quality adjustments based on although other kinds of weighting may be explicitly or hedonic methods. See also “quality adjustment” and implicitly introduced into the calculation of elemen- “implicit quality adjustment.” tary indices. Three examples of elementary index number formulas are the Carli, the Dutot, and the Jevons Factor reversal test indices. Suppose the prices and quantities in a price index are interchanged to yield a quantity index of exactly the Enterprise same functional form as the price index. Under the An institutional unit in its capacity as a producer of axiomatic approach, the factor reversal test requires that goods and services consisting of one or more establish- the product of this quantity index and the original price ments. An enterprise may be a corporation, a quasi- index should be identical with the proportionate change corporation, a nonprofit institution, or an unincorporated in the value of the aggregate in question. Also known enterprise. as the “product test.”

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Factory gate price of quantities in both periods are identical), the price index should equal the proportionate change in the A basic price with the “factory gate” as the pricing point. value of the aggregate. Also known as the “constant FEPI quantities test.”

Final expenditure price index. A measure of the F.o.b. price changes in prices paid by consumers, businesses, and government for final purchases of goods and services. Free on board price. The price of a good delivered at Intermediate purchases are excluded. the customs frontier of the exporting country or the price of a service delivered to a nonresident. It includes FIOPI the freight and insurance charges incurred to that point and any export duties or other taxes on exports levied Fixed-input output (export) price index. The theoretical by the exporting country. model for an XPI for resident producers based on the assumption of fixed technology and inputs. It requires the index to reflect changes in revenue resulting from FOIPI the export of the same products—although not neces- Fixed-output input (import) price index. The theoret- sarily the same mix of products—produced under the ical model for an MPI for resident producers based same circumstances and sold under the same terms. on the assumption of fixed technology and outputs. It In other words, changes in the index arise solely from requires the index to reflect changes in costs result- changes in export prices and are not influenced by ing from the import of the same inputs—although not changes in inputs. Revenue maximizing behavior is necessarily the same mix of inputs—purchased under assumed on the part of the exporting producer. the same terms in order to produce the same output with the same technology. In other words, changes in Fisher price index the index arise solely from changes in import prices of A price index defined as the geometric average of the inputs and are not influenced by changes in outputs. Laspeyres price index and the Paasche price index. It is Cost minimizing behavior is assumed on the part of the a symmetric and superlative index. importing producer. ______ P F PL PP Formula bias

Fixed-basket price index Bias arising from the index number formula used to calculate the index. See “bias” and “substitution bias.” The traditional conceptualization of a price index. The index measures the change in value of a fixed set of GDDS quantities—commonly described as a “fixed basket of good and services”—between two periods. Because the General Data Dissemination System. A system quantities or weights remain fixed, any change in the designed by the IMF to promote the development index is due to price changes only. In principle, there and dissemination of comprehensive macroeconomic, is no restriction on the quantities that make up the bas- financial, and socio-demographic data sets in line ket. They may be those of one of the two periods being with international methodology and good practice. It compared, they may refer to the quantities in some third enables official statistical agencies to identify and pri- period, or they may constitute a hypothetical basket such oritize improvements to their statistics in a thorough as an average of the quantities in the two periods. More- and systematic way. over, the quantities may refer to a much longer period of time than the periods of the index: for example, quantities Geometric Laspeyres price index exported or imported over a period of a year or more may A price index defined as the weighted geometric be used for a monthly or quarterly XPI or MPI. A fixed- average of the current to base period price relatives basket index is sometimes described as a “pure price using the value shares of the base period as weights. index.” Also known as a “fixed-weight price index.” Also known as the “logarithmic Laspeyres price Fixed-basket test index.” pt s0 p0q0 A test under the axiomatic approach that requires that __ 0 _ P GL where s if all the quantities remain unchanged (that is, the sets p0 p 0q0

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Geometric Paasche price index Higher-level index A price index defined as the weighted geometric aver- A term used to describe an index for an aggregate at a age of the current to base period price relatives using higher level of aggregation than an elementary aggre- the value shares of the current period as weights. Also gate. An index constructed from elementary or lower- known as the “logarithmic Paasche price index.” level indices. Weights are used to combine them. Also referred to as an “upper-level index.” pt st ptqt P __ where st ______GP p0 p tqt Homogeneity tests Four tests under the axiomatic approach, namely: Goods the proportionality in current prices test, the inverse proportionality in base prices test, the invariance to pro- Physical objects for which a demand exists, over which portional changes in current quantities test, and the invari- ownership rights can be established, and whose own- ance to proportional changes in base quantities test. ership can be transferred from one institutional unit to another by engaging in transactions on the market. HS They are in demand because they may be used to satisfy the needs or wants of households or the community Harmonized Commodity Description and Coding Sys- or used to produce other goods or services. tem or Harmonized System. An internationally agreed commodity classification providing the basis for customs tariffs and for the compilation and dissemina- Gross value added tion of statistics on international merchandized trade. See “value added.” Goods are classified primarily according to the component material or the type of product, degree of pro- Harmonic mean of price relatives cessing, function, and economic activity. The HS was introduced in 1988 as a replacement for the SITC. It An elementary index that constitutes the harmonic is updated every four to six years to take account of average counterpart to the Carli index. changing conditions of international trade. It was last revised in 2007 (HS07). There is full correspondence 1 P ______between the six-digit subheadings of HS07 and the HR p0 __1 __ five-digit basic headings of SITC Rev.4. n pt Hybrid (export or import) index Harmonic means price index A price index that combines price indices for some of See “ratio of harmonic means of prices.” the elementary aggregates covered by the index with unit value indices for the other elementary aggregates Hedonic method covered by the index. Price indices are used for heterogeneous elementary aggregates with unacceptable A regression technique in which observed prices of levels of unit value bias. Unit value indices are used for different qualities or models of the same generic good homogeneous elementary aggregates with acceptable or service are expressed as a function of the char- levels of unit value bias. See “price dispersion test” and acteristics of the goods or services in question. It is “quantity proportionality test.” based on the hypothesis that products can be treated as bundles of characteristics and that prices can be Hybrid values attached to the characteristics. The characteristics may be non-numerical attributes that are represented Hypothetical values in which quantities are valued at by dummy variables. The regression coefficients are a different set of prices from those at which they were treated as estimates of the contributions of the char- actually bought or sold. For example, when the quanti- acteristics to the overall prices. The estimates may be ties purchased in an earlier period are valued at prices used to predict the price of a new quality or model prevailing in a later period. whose mix of characteristics is different from that ICP of any product already on the market. The hedonic method can therefore be used to estimate the effects of International Comparison Programme. A worldwide quality changes on prices. statistical program that compares the price and volume

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©International Monetary Fund. Not for Redistribution GLOSSARY levels of GDP and its component expenditures across that measures the overall change in quantities between participating countries. Comparisons are made every the two periods—that is, the quantity index. five or so years. Before such comparisons can be made, it is first necessary to express the GDPs of participating Index reference period countries—which are in national currencies and valued at national price levels—in a common currency at a uni- The period for which the value of the index is set at 100. form price level. Purchasing power parities (PPPs) are See also “base period.” used to do this. The PPPs are calculated with price and expenditure data collected from participating countries. Indexation The price and expenditure data collected cover the whole The periodic adjustment of the money values of some range of final goods and services included in GDP. regular scheduled payments based on the movement of a nominated price index such as the CPI or another simi- Identity test lar price index. The payments may be wages or salaries, A test under the axiomatic approach that requires that social security or other pensions, other social security if the prices remain unchanged between the two peri- benefits, rents, interest payments, etc. The purpose of ods (that is, the sets of prices are identical), the price indexation is to protect the recipients of the payments index should equal unity. Also known as the “constant against inflation. Also known as “index linking.” prices test.” Indexation of contracts Implicit quality adjustment A procedure whereby a long-term contract for the provision of goods or services includes a periodic adjust- Inferring indirectly the change in the quality of a product ment to the prices paid for the goods or services based whose characteristics change over time by estimating, on the increase or decrease in the level of a nominated or assuming, the pure price change that has occurred. price index, such as the PPI, the XPI, or the MPI. For example, if the pure price change is assumed to be The purpose of the indexation is to take inflation- equal to the average for some other group of products, ary risk out of the contract. Also known as “contract the implied change in quality is equal to the actual escalation.” observed price change divided by the assumed pure price change. If the whole of the observed price change Industry is assumed to be pure price change, there is assumed to be no change in quality. See also “quality adjustment” A general term to describe a group of establishments and “explicit quality adjustment.” engaged in the same, or similar, kinds of production activity. Also a specific term used to describe establish- Imputed price ments engaged in mining and quarrying, manufacturing, electricity, gas, and water (Sections C, D, and E of The price assigned to a product for which the price ISIC, Rev. 3). is missing in a particular period. The term “imputed price” may also refer to the price assigned to a product Input editing that is not sold on the market, such as a good or service produced for own consumption, including housing ser- The process of analyzing the prices reported by an vices produced by owner-occupiers, or one received as individual respondent and querying price changes that payment in kind or as a free transfer from a government are above a specified level or are inconsistent across or nonprofit institution. product lines. An important objective of the process is to ensure that actual transaction prices are reported and Index number problem to detect any changes in the specifications. How to combine the relative changes in the prices and Institutional unit quantities of various products into (1) a single measure of the relative change of the overall price level and (2) a A national accounts concept defined as an economic single measure of the relative change of the overall entity that is capable, in its own right, of owning assets, quantity level. Or, conversely, how a value ratio pertain- incurring liabilities, and engaging in economic activi- ing to two periods can be decomposed into a component ties and transactions with other entities. Enterprises are that measures the overall change in prices between the institutional units. Other kinds of units include house- two periods—that is, the price index—and a component holds and governments.

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Intermediate basket scalar , the new price index is 1 times the old price index. A basket derived as the average of the baskets of two time periods, usually the base and current periods. The ISIC average can be arithmetic, as in the Marshall-Edgeworth price index, or geometric, as in the Walsh price index. International Standard Industrial Classification of All Economic Activities. An internationally agreed Intermediate consumption classification that allows enterprises and establishments to be classified according to economic activ- The value of goods and services used or consumed as ity based on the class of goods produced or services intermediate inputs by a process of production. rendered.

Intermediate inputs Item Goods and services, other than primary inputs and An individual good or service in the sample of products fixed assets, used as inputs into the production pro- selected for pricing. Also referred to as an “elementary cess of an establishment, which are produced elsewhere item.” in the economy or are imported. They may be either transformed or used up by the production process. Also Item or product rotation called “intermediate products.” The deliberate replacement of a sampled item, or prod- Intra-company transfer price uct, for which prices are being collected, by another product before the replaced product has disappeared The value assigned on a per unit or per shipment basis to from the market or individual establishment. It is goods transferred from one establishment of an enterprise designed to keep the sample of products up to date to another. It may or may not be economically significant. and reduce the need for forced replacements caused However, it is not a market price because ownership of by the disappearance of products. See “replacement the good does not change hands. See “transfer price.” product.”

Invariance or symmetry tests Item or product substitution Five tests under the axiomatic approach, namely: the The deliberate or forced replacement of a sampled item, commodity reversal test, the commensurability test, or product, for which prices are being collected, by the time reversal test, the quantity reversal test, and the a new product because it is about to disappear or has price reversal test. disappeared from the market or specific establishment. See “replacement product.” Invariance to changes in the units of measurement test ITRS A test under the axiomatic approach that requires that the International Transactions Reporting System. An ITRS price index does not change when the units of quantity to measures individual balance of payments cash transac- which the prices refer are changed: for example, when tions passing through the domestic banks and foreign the price of some drink is quoted per liter rather than per bank accounts of enterprises, noncash transactions, and pint. Also known as the “commensurability test.” stock positions. Statistics are compiled from forms submitted by domestic banks and from forms submitted by Invariance to proportional change in current enterprisers to the compiler. or base quantities test A test under the axiomatic approach that requires that Jevons price index the price index remains unchanged when all the base An elementary price index defined as the unweighted period quantities, or all the current period quantities, geometric average of the current to base period price are multiplied by a positive scalar. relatives also equal to the ratio of geometric means of the current to base period prices. Inverse proportionality in base prices test t 1n t1n A test under the axiomatic approach that requires that __ p ______ p P J 0 if all base period prices are multiplied by the positive p p 01 n

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Laspeyres price index index, and the Walsh index. See equation (G.1) in the Appendix. A price index defined as a fixed-basket, or fixed-weight, index that uses the basket of goods and services of the In practice, official statistical agencies frequently use base period. The base period serves as both the weight a Lowe price index with a quantity basket of period b, reference period and the price reference period. It is where b denotes some period before 0, and hybrid value identical to a weighted arithmetic average of the cur- shares valued at prices in period 0, the price reference rent to base period price relatives using the value shares period. The share-weighted Lowe index is of the base period as weights. Also called a “base- weighted index.” t 0 b b0 __p b0 ______p q PLO s where s . p0 0 b p t q 0 pt p0q0 p q P ______ s 0__ where s0 ______L p 0q0 p0 p 0q0 Lower-level index

List price See “elementary price index.”

The price of a product as quoted in the seller’s price list, Market price catalogue, Internet site, etc. The gross price exclusive of all discounts, surcharges, rebates, and the like that apply The amount of money a willing buyer pays to acquire to an actual transaction. Also known as the “book price.” a good or service from a willing seller. The actual price for a transaction agreed by the transactors. The LKAU net price inclusive of all discounts, surcharges, and rebates applied to the transaction. From the seller’s Local kind of activity unit. See “establishment.” point of view, the market price is the basic price; from the buyer’s point of view, the market price is Lloyd-Moulton price index the purchaser’s price. Also referred to as “transac- A particular case of a constant elasticity of substitution tion price.” price index. In its unweighted form, the Lloyd-Moulton formula is Marshall-Edgeworth price index A price index defined as the weighted arithmetic aver- pt 1 _1 age of the current to base period price relatives that uses P _1 _ 1 . LM [ n p0 ] the quantities of an intermediate basket as weights. The quantities of the intermediate basket are arithmetic aver- In its weighted form, the Lloyd-Moulton formula is ages of the quantities of the base and current periods. It is a symmetric index and a pseudo-superlative index.

pt 1 _1 p0q0 0 _ 1 0 _ PLM s where s . t t 0 [ p0 ] 0 0 __p q q 2 p q PME p0 q t q02

Lowe price index Matched models or products method Although called a “Lowe price index” after the index number pioneer who first proposed this general type The practice of pricing exactly the same model or prod- of index, it is not a single index but a family of basket uct in two or more consecutive periods. It is designed to price indices, each of which measures the proportionate ensure that the observed price changes are not affected change between periods 0 and t in the total value of a by quality change. The change in price between two specified basket of goods and services. perfectly matched models or products is described as a “pure” price change. t ______p q n P where the terms qn are the specified LO 0 p qn Mean value tests quantities. Three tests under the axiomatic approach, namely: the The family of Lowe indices includes the Laspeyres mean value test for prices, the mean value test for quan- index, the Paasche index, the Marshall-Edgeworth tities, and the Paasche and Laspeyres bounding test.

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Mean value test for prices The decomposition helps deal with changes in the sampled products. In the absence of changes in the sample, A test under the axiomatic approach that requires that P reduces to a Young index between t and 0 with the price index lies between the smallest price relative MLAS weight reference period b. and the largest price relative. t b __p Mean value test for quantities PMLAS s PY p0 A test under the axiomatic approach that requires that the implicit quantity index lies between the minimum and As a price-updated version of a Young index. This is a maximum rates of growth of the individual quantities. fixed-weight index in which the quantities are those of the weight reference period b, but the price reference Merchanting period is a later period 0 preceding the current period t. The implicit expenditure weights are obtained by The purchase of goods by a resident from a nonresident revaluing the quantities of the weight reference period b combined with the subsequent resale of the goods to at the prices of the price reference period 0, a procedure another nonresident without the resident taking physi- described as “price updating.” This modified Laspeyres cal possession of the goods. In other words, the goods index between periods 0 and t can be interpreted as a do not pass through the economic territory in which the weighted average of the price relatives between 0 and t, resident resides. using the price-updated expenditure weights. Its definition is Microeconomic approach sbp 0pb pt See “economic approach.” ________ s bp 0pb p0 Mid-period or midyear price index and corresponds to a Lowe price index between periods A price index that utilizes either the quantity or value 0 and t with weight reference period b. See also “price weights from an intermediate period that lies between updating” and “Lowe price index.” the base period and the current period when the number of periods between them is odd, or the average of the As a two-stage Laspeyres index. The two-stage proce- quantity or value weights for two consecutive interme- dure decomposes a Laspeyres price index between b diate periods that lie between the base period and the and t into a Laspeyres price index between b and 0 and current period when the number of periods between a Lowe price index between 0 and t. them is even. t b 0 b t b ______p q ______p q _p q Mirror price index p bqb p bqb p 0qb An XPI for a country constructed as the weighted average of the corresponding MPIs of the countries to See also equation (G.3) in the Appendix. which it exports. An MPI for a country constructed as the weighted average of the corresponding XPIs of the Monotonicity in prices countries from which it imports. The property whereby if any current period price increases or any base period price decreases, the price “Modified,” “short-term change,” or “two-stage” index increases. Laspeyres price index These often-used descriptions of the Laspeyres index Monotonicity in quantities have at least three meanings: The property whereby if any current period quantity increases or any base period quantity decreases, the As a short-run modified Laspeyres index. This is an implicit quantity index that corresponds to the price index with weight reference period b and price changes index increases. between periods 0 and t where the latter are decomposed into price changes between period 0 and t 1 Monotonicity tests and period t 1 and t. Four tests under the axiomatic approach that test for pt1 pt pbqb b ______b ______monotonicity in current prices, in base prices, in cur- PMLAS s 0 t1 where s p p p bqb rent quantities, and in base quantities.

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MPI of different sources, including defects in the sampling frame and/or in the selection of sample units, faulty Import price index. See “XMPIs.” demarcation of sample units, mistakes in the collection of data owing to misunderstandings or dishonesty on Multi-factor productivity the part of the enumerator and/or the respondent, and See “total factor productivity.” mistakes during the processing of data.

NACE Observation The acronym from the French for General Industrial The price collected or reported for a sampled product Classification of Economic Activities within the Euro- or item. pean Communities. The classification is basically a more detailed version of ISIC appropriate to European Order price circumstances. The price quoted at the time the order is placed by the purchaser. Net exports The value of exports of goods and services less the Other subsidies on production value of imports of goods and services. Also known as The subsidies that resident enterprises may receive as the “balance of exports and imports.” a consequence of engaging in production; for example, subsidies on payroll or workforce, or subsidies to reduce Net value added pollution. They do not include subsidies on products. See “value added.” Other taxes on production New good problem The taxes that resident enterprises may pay as a conse- Difficulty in comparing prices between two periods quence of engaging in production. They mainly consist when a product enters the basket only in period 2, so of current taxes on the labor or capital employed in the that a price for the product does not exist in period 1. enterprise, such as payroll taxes or current taxes on vehicles or buildings. They do not include taxes on products. New goods See “evolutionary goods” and “revolutionary goods.” Outlier A term that is generally used to describe any extreme Non-probability sampling value in a set of survey data. In an XMPI context, it is Selection in which establishments or products do not used for an extreme value of price or price relative that have a known non-zero probability of selection. Also requires further investigation or that has been verified known as “non-random sampling.” It includes the delib- as being correct. erate selection of a sample of establishments and products on the basis of the knowledge or judgment of the Output person responsible. Also known as “purposive sam- The goods or services that are produced within an pling” and “judgmental sampling.” establishment that become available for use outside that establishment, plus any goods and services produced Nonresident for own final use. An institutional unit whose center of economic interest is not in the economic territory of the country. Output editing The process of comparing the price levels and price Non-response bias movements of similar products between different The bias that arises when those who do not respond have respondents and querying any outliers. different price experiences than those who do respond. Paasche and Laspeyres bounding test Non-sampling error A test under the axiomatic approach that requires that An error in sample estimates that cannot be attrib- the price index lies between the Laspeyres price index uted to sample variation. It can arise from any number and the Paasche price index.

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Paasche price index selection proportional to the size of some known variable. In the case of XMPIs, size is usually defined in A price index defined as a fixed-basket, or fixed-weight, terms of export or import values or shares. index that uses the basket of goods and services of the current period. The current period serves as the weight Price adjustment escalator reference period and the base period as the price reference period. It is identical to a weighted harmonic aver- The price index nominated to determine the periodic age of the current to base period price relatives using adjustments to regular scheduled payments or to prices the value shares of the current period as weights. Also of long-term contracts required under indexation. See called a “current weighted index.” “indexation” and “indexation of contracts.”

pt qt pt 1 1 pt q t P ______ s t __ where st ______Price dispersion test P p0 q t [ p 0 ] pt q t A test to determine whether the individual unit values for an elementary aggregate (defined as the lowest level Palgrave price index of the customs commodity classification by destina- A price index defined as the weighted arithmetic aver- tion or source country) are sufficiently uniform for the age of the current to base period price relatives using overall unit value to be used as a surrogate price in a the current period value shares as weights. hybrid XPI or MPI. The test involves computing unit values for every transaction covered by the elementary aggregate for a given month or quarter (depending on __pt ______pt q t P st where st the frequency of the index) and measuring their statis- Pal p 0 pt q t tical variance. A low variance measurement indicates that the overall unit value for the elementary aggregate Point-in-time prices could be included in the index. Before doing so, the test Transaction prices prevailing on a particular day of the is repeated for a number of months or quarters to verify month. that the low variance measurement persists over time. See also “quantity proportionality test.” Positivity Price index The property whereby the price index and its constitu- ent vectors of prices and quantities are positive—that A measure reflecting the average of the proportionate is, greater than zero. changes in the prices of the specified set of goods and services between two periods of time. Usually a price PPI index is assigned a value of 100 in some selected base period, and the values of the index for other periods are Producer price index . A measure of the change in the intended to indicate the average percentage change in prices of goods and services either as they leave their prices compared with the base period. place of production or as they enter the production process. A measure of the change in the prices received by Price reference period domestic producers for their outputs or of the change in the prices paid by domestic producers for their inter- The period with whose prices the prices in the current mediate inputs. period are compared. The period whose prices appear in the denominators of the price relatives. See also PPPs “base period.” Purchasing power parities. Spatial deflators and cur- Price relative rency converters that eliminate the effects of the differences in price levels between countries, thus allowing The ratio of the price of an individual good or service in volume-level comparisons and price-level comparisons one period to the price of that same good or service in of GDP and its components. some other period. Also referred to as a “price ratio.”

PPS Price reversal test Probability proportional to size. A sampling procedure A test under the axiomatic approach that requires whereby each unit in the universe has a probability of that the quantity index remains unchanged after the

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©International Monetary Fund. Not for Redistribution GLOSSARY price vectors for the two periods being compared are Producer’s price interchanged. The amount received by the producer from the purchaser for a unit of good or service produced as Price updating output. It excludes any VAT (or similar deductible A procedure whereby the quantities of an earlier period tax on products) invoiced to the purchaser. It also are revalued at the prices of a later period. The resulting excludes supplier’s retail and wholesale margins and values are hybrid. In practice, the price-updated values separately invoiced transport and insurance charges. may be obtained by multiplying the original values by (A producer’s price for a product is the basic price price relatives or price indices. Also known as “value plus any nondeductible tax on products paid by the updating.” producer less any subsidies on products received by the producer.) Pricing point Product The point in the production or distribution process to which the price refers. For an exported good, it is See “commodity.” the customs frontier of the exporting country; for an imported good, it is the customs frontier of the import- Product line ing country. For an exported service, it is the place of A group, class, or category of products that is relatively delivery to a nonresident; for an imported service, it is homogeneous in use and price behavior. the place of delivery to a resident. Product line specification Pricing to constant quality A statement of the characteristics of the range of See “specification pricing.” products included in a product line. Its purpose is to provide the frame within which individual products Primary inputs may be selected as part of the sample for pricing. It Land, labor, and capital. may also describe the products included in a subindex. See “SPD.” Probability sampling Product specification The random selection of a sample of units, such as establishments or commodities, in such a way that each A detailed list of the characteristics that identify an unit has a known non-zero probability of selection. It individual sampled product. Its purpose is to ensure ensures that the units are selected in an impartial and that a consistent price is collected from period to objective fashion and permits the measurement of the period relating to a consistent product with the same quality of survey results through estimates of the vari- terms of sale in each period. Hence, the characteristics ance or sampling error. Also known as “random sam- listed cover both the product (name, serial number, pling” or “scientific sampling.” description, etc.) and the transaction (class of customer, size of shipment, discounts, payment terms, PRODCOM delivery details, etc.). Production Communautaire, The acronym from the Product test name in French for the European Union’s system for the collection and dissemination of statistics on the produc- See “factor reversal test.” tion of manufactured goods. Manufactured goods are those produced by the mining, quarrying, and manu- Production facturing industries. The system is based on a product classification—the Prodcom List—with about 4,500 An activity that transforms or combines material inputs headings relating to manufactured products. into other material outputs—as in agricultural, mining, manufacturing, or construction activities—or transports materials from one location to another. Production also Producer’s index includes storage activities—which in effect transport An index constructed from price data supplied by materials in the same location from one time period to producers—that is, by exporters in the case of XMPIs. another—and the creation of services of all types.

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Proportionality in current prices test “Pure” quantity index A test under the axiomatic approach that requires that A quantity index that measures “pure” quantity change. if all current period prices are multiplied by the posi- A quantity index that is based on a fixed basket of tive scalar , the new price index is times the old products where the quantities of the base period and price index. the quantities of the current period are both valued with the same set of prices. Because the products and their Pseudo-superlative index prices remain constant, any change in the index is due to changes in quantities only. Also called an “unequivo- An index that approximates any superlative index to the cal quantity index.” second order around an equal price and quantity point. Purposive sampling Purchaser’s index See “non-probability sampling.” An index constructed from price data supplied by purchasers—that is, by importers in the case of XMPIs. Quality adjustment

Purchaser’s price An adjustment to the change in the price of a product whose characteristics change over time that is designed The amount paid by the purchaser in order to take to remove the contribution of the change in the charac- delivery of a unit of a good or service at the time teristics to the observed price. In a price index context, and place required by the purchaser. It excludes any an adjustment is needed when the price of a replacement VAT (or similar deductible tax on products) that the product has to be compared with the price of the product purchaser can deduct from his own VAT liability with it replaces. In practice, the required adjustment can only respect to VAT invoiced to his customers. It includes be estimated. Different methods of estimation, includ- supplier’s retail and wholesale margins, separately ing hedonic methods, may be used in different circum- invoiced transport and insurance charges, and any VAT stances. See “explicit quality adjustment” and “implicit (or similar deductible tax on products) that the pur- quality adjustment.” chaser cannot deduct from his own VAT liability. (A purchaser’s price for a product is the producer’s price Quality change bias plus supplier’s retail and wholesale margins, separately invoiced transport and insurance charges, and nonde- Systematic error arising from the application of inap- ductible taxes on products payable by the purchaser.) propriate or no quality adjustments. Purchasers’ prices are the prices most relevant for decision making by buyers. Quantity index A measure reflecting the average of the proportionate “Pure” price change changes in the quantities of a specified set of goods and The change in the price of a good or service whose services between two periods of time. Usually a quan- characteristics are unchanged; or the change in the tity index is assigned a value of 100 in some selected price after adjusting for any change in quality. base period, and the values of the index for other periods are intended to indicate the average percentage “Pure” price index change in quantities compared with the base period. See “volume index.” A price index that measures “pure” price change. A price index that is based on pricing a fixed basket of Quantity proportionality test products and product quantities at the prices of the base An elementary aggregate (defined as the lowest level of period and at the prices of the current period. Because the customs commodity classification by destination or the products and their quantities remain constant, any source country) may fail the price dispersion test, yet its change in the index is due to price changes only. Also overall unit value may still be suitable for inclusion as a called an “unequivocal price index.” surrogate price in a hybrid XPI or MPI if the quantities of the various transactions covered by the elementary “Pure” quantity change aggregate remain in fixed proportions over time. The The change in the quantity of a good or service whose quantity proportionality test is used to verify whether or characteristics are unchanged. not this is the case. It involves computing the average

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©International Monetary Fund. Not for Redistribution GLOSSARY quantities transacted across quantiles of the transaction • changing the index reference period for a series of values for a number of months or quarters (depending indices. on the frequency of the index) and comparing the rela- The weights, the price reference period, and the index tives of the average quantity transacted between months reference period may be changed separately or at the or quarters for each quantile. If the quantity relatives same time. are roughly the same across quantiles, this adds support to the proposition that quantity proportions have not Rebate changed over time. See also “price dispersion test.” A discount paid to the customer after the transaction Quantity relative has occurred.

The ratio of the quantity of a specific good or service in Replacement product one period to the quantity of the same good or service in some other period. The product chosen to replace a product previously sampled, either because it has disappeared completely Quantity reversal test from the market or because its market share has fallen either in a specific establishment or in the market as A test under the axiomatic approach that requires that the a whole. price index remains unchanged after the quantity vectors for the two periods being compared are interchanged. Representative product Quantity weights A product, or product line, that accounts for a significant proportion of the total trade within an elementary Weights defined in terms of physical quantities, such aggregate, and/or for which the average price change as the number or total weight of goods or the number is expected to be close to the average for all products of services. Quantity weights are feasible only at the within the aggregate. detailed product level because meaningful aggregation of product weights requires them to be commensurate. Representativity bias Values rather than quantities act as weights for price relatives. See “value weights.” Bias in a basket index that results from the use of products that are not representative of those in the two peri- Random sampling ods being compared; that is, the bias that arises from See “probability sampling.” the use of products whose aggregate price change systematically diverges from the average price change in Ratio of harmonic means of prices the two periods.

An elementary index that constitutes the harmonic Resident average counterpart to the Dutot index. Also known as the “harmonic means price index.” An institutional unit whose center of economic interest is in the economic territory of the country. n p 0 P ______RH n p t Rest of the world Real GDI All nonresident institutional units that enter into transactions with resident units or have economic links with Real gross domestic income. A real income measure resident units. defined as the volume of GDP plus the trading gain or loss resulting from changes in the terms of trade. Revenue Rebasing The value of output sold. The value of invoiced sales of goods or services supplied to third parties during the Rebasing may have different meanings in different con- reference period. texts. It may mean • changing the weights used for a series of indices, Revenue weights • changing the price reference period used for a series Weights or shares based on the value of output sold in of indices, or the weight reference period. See “value weights.”

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Revolutionary goods Sampling error Goods that are significantly different from existing A measure of the chance of a difference between the goods. They are generally produced on entirely new results obtained from the units sampled and the results production lines using production inputs and processes that would have been obtained from a complete enu- that are considerably newer than those used to produce meration of all units in the universe. existing goods. It is virtually impossible, both in theory and in practice, to adjust for any quality differences Sampling frame between a revolutionary good and any existing good. The list of the units in the universe from which a sample of units is to be selected. It provides for each unit Reweighting the details, such as the unit’s location, size, value, and Replacing the weights used in an index with a new set type of exports and/or imports, required to pick the of weights. sample. Also referred to as the “survey frame.”

Rolling year indices Sauerbeck price index A monthly series of indices that compares successive A price index defined as the weighted arithmetic aver- non-calendar years, each of 12 consecutive months, age of the current to previous period price relatives with a base calendar year. The monthly indices are con- using the values of the base period as weights. The structed by comparing each month in the non-calendar price reference period is the previous period (that is, year with the corresponding month in the base calendar the period immediately before the current period), year. The resulting indices can be regarded as seasonally and the weight reference period is some other fixed adjusted price indices. For example, if the base calendar period before the previous period. A time-series index year is 2000, the index for January 2001 will refer to is derived by chaining, which, because the weight ref- the non-calendar year February 2000 to January 2001: erence period remains fixed, can result in a serious February 2000 will be compared with February 2000, upward drift in the index when price changes are large March 2000 with March 2000, ...... , December and erratic. 2000 with December 2000, and January 2001 with January 2000. The index for February 2001 will refer Scope to the non-calendar year March 2000 to February 2001: The set of goods and services or transactions for which March 2000 will be compared with March 2000, April the index is intended to measure the price changes. In 2000 with April 2000, ...... , January 2001 with practice, certain goods and services may have to be January 2000, and February 2001 with February 2000, excluded because it is too difficult, time-consuming, or and so on for each month in the series. costly to collect the required data on values or prices. The coverage of an index denotes the actual set of goods Sample augmentation and services included, as distinct from the intended Maintaining and adding to the sample of establishments scope of the index. Also referred to as “domain.” in the survey panel to ensure that it continues to be representative of the population of establishments. A fixed Seasonal products sample of establishments tends to become depleted as Products that either (1) are not available on the market establishments cease producing or stop responding. during certain seasons or periods of the year or (2) are Recruiting new establishments also facilitates the inclu- available throughout the year but with regular fluctua- sion of new commodities in an XPI or an MPI. tions in their quantities and prices that are linked to the season or time of year. A product that satisfies (1) is Sample rotation said to be “strongly seasonal.” A product that satisfies (2) is said to be “weakly seasonal.” Limiting the length of time that establishments and/or commodities are included in price surveys by dropping Sector a proportion of them, or possibly all of them, after a certain period of time and selecting a new sample of estab- A general term used to describe a group of establish- lishments and/or commodities. Rotation is designed to ments engaged in similar kinds of economic activity. keep the sample up to date. It also helps to alleviate the A sector can be a subgroup of an economic activity— problems caused by sample depletion. as in “coal mining sector”—or a group of economic

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activities—as in “service sector”—or a cross-section tionally agreed concepts, definitions, classifications, of a group of economic activities—as in “informal sec- and accounting rules. The system first appeared in tor.” Also a specific term used in the SNA to denote one 1953 and since then has evolved, going through major of the five mutually exclusive institutional sectors that revisions in 1968 and 1993. SNA 2008 is an update of group together institutional units on the basis of their SNA 1993, the version currently adhered to by most principal functions, behavior, and objectives, namely: countries. nonfinancial corporations, financial corporations, general government, nonprofit institutions serving house- SPDs holds, and households. Structured product descriptions. The generic product descriptions used to define the product specifications Services to be priced for the ICP. An SPD refers to a product Outputs produced to order and that cannot be traded cluster. It lists the technical and economic characteris- separately from their production. Ownership rights tics that products constituting the cluster can possess. cannot be established over services, and by the time A product cluster usually covers a narrow range of their production is completed they must have been homogeneous products, but variation in their common provided to the consumers. However, as an exception set of characteristics is to be expected. A product can to this rule, there is a group of industries, generally therefore be distinguished from others in the cluster by classified as service industries, some of whose outputs identifying its specific subset of characteristics. The have characteristics of goods. These are the industries subset provides the basis for a product specification concerned with the provision, storage, communication, should the product be selected for pricing. See “product and dissemination of information, advice, and enter- line specification.” tainment in the broadest sense of those terms. The products of these industries, where ownership rights Specification can be established, may be classified as either goods or services depending on the medium by which these A description or list of the characteristics that can be outputs are supplied. used to identify an individual sampled product to be priced. A tight specification is a fairly precise description of an item intended to narrow the range of items Shipment price from which a price collector might choose, possibly The price at the time the order is delivered to the reducing it to a unique item, such as a particular brand purchaser. of television set identified by a specific code number. A loose definition is a generic description of a range SITC of items that allows the price collector some discre- tion as to which particular item or model to select for Standard International Trade Classification. An pricing, such as color televisions sets of a particular internationally agreed commodity classification for screen size. the compilation and dissemination of statistics on international merchandised trade. SITC commodity Specification pricing groupings reflect (1) the nature of the product and the materials used in its production, (2) the stage of The pricing methodology whereby a manageable sam- processing, (3) marketing practices and the uses of the ple of precisely specified products is selected, in con- product, (4) the importance of the product in world sultation with each reporting establishment, for repeat trade, and (5) technological changes. The original pricing. Products are fully defined in terms of all char- SITC was published in 1951 and has been revised acteristics that influence their transaction prices. The periodically. It was last revised in 2006 (SITC Rev.4). objective is to price to constant quality in order to pro- There is full correspondence between the five-digit duce an index showing pure price change. basic headings of SITC Rev.4 and the six-digit subheadings of HS07. Splicing Introducing a replacement item and attributing any SNA 2008 price change between the replacement item in the System of National Accounts, 2008. A coherent, con- period it is introduced and the replaced item in the sistent, and integrated set of macroeconomic accounts, period prior to the introduction to the change in balance sheets, and tables based on a set of interna- quality.

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Spot market price services in the basket to be priced are fixed, and so the index cannot take into account the effects of sub- A generic term referring to any short-term sales agree- stitutions made by exporters or importers in response ment. Generally it refers to single-shipment orders with to changes in relative prices. Exporters seeking to delivery expected in less than one month. Goods sold on maximize revenue may shift to exporting items with this basis are usually off-the-shelf and not subject to cus- above-average relative price increases and, as a result, tomization. Spot market prices are subject to discount- an XPI with base period quantities will systematically ing and directly reflect current market conditions. understate average price increases. Importers seeking to minimize costs may shift to importing items with Stage of processing below-average relative price increases and, as a result, The classification of goods and services according an MPI with base period quantities will systematically to their position in the chain of production. However, overstate average price increases. The direction of the unlike the classification by stage of production, a prod- bias will be reversed if current period quantities are uct is allocated to only one stage even though it may used—that is, the XPI will systematically overstate occur in several stages. Goods and services are classi- average price increases and the MPI will systemati- fied as either primary products, intermediate products, cally understate them. See “FIOPI,” “FOIPI,” and or finished products. “true index.”

Stage of production Superlative index The classification of goods and services according to An index that is “exact” for a “flexible aggregator.” their position in the chain of production, but allow- A flexible aggregator is a second-order approxima- ing for the multi-function nature of products. Unlike tion to an arbitrary cost, production, utility, or distance the classification by stage of processing, a product is function. Exactness implies that a particular index allocated to each stage to which it contributes and not number can be derived directly from a specific flex- assigned solely to one stage. Goods and services are ible aggregator. The Fisher price index, the Törnqvist classified as primary products, intermediate products, price index, and the Walsh price index are superlative and/or finished products. indices. Superlative indices are generally symmetric indices. Stochastic approach Surcharge The approach to index number theory that treats the observed price relatives as if they were a random An addition to the list price of a good or a service. It sample drawn from a defined universe for which the is generally of short duration, reflecting unusual cost mean can be interpreted as the general rate of inflation. pressures affecting the producer; for example, a fuel The sample mean provides an estimate of the rate of surcharge for transport operators. inflation. Survey frame Subsidies on products See “sampling frame.” The subsidies on goods or services produced as the outputs of resident enterprises that become payable as SUTs the result of the production of those goods or services. Supply and use tables. SUTs are in the form of matrices They are payable per unit of good or service produced. that record how supplies of different kinds of goods and services originate from domestic industries and imports Subsidized prices and how those supplies are allocated between various Prices that differ from market prices in that some sig- intermediate and final uses, including exports. nificant portion of variable and/or fixed costs are covered by a revenue source other than the selling price. Symmetric index An index that treats the two periods being compared Substitution bias symmetrically by attaching equal importance to the The bias that results when a fixed basket index is price and value data in both periods. The price and value used. By definition, the quantities of the goods and data for both periods are entered into the index number

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©International Monetary Fund. Not for Redistribution GLOSSARY formula in a symmetric or balanced way. The superla- from the first to the second period or backward from tive price indices of Fisher, Törnqvist, and Walsh are the second to the first period. symmetric indices, as are the pseudo-superlative price indices of Drobisch and Marshall-Edgeworth. Törnqvist price index A price index defined as the weighted geometric aver- Target index age of the current to base period price relatives in which The theoretical index that compilers would choose to the weights are the simple unweighted arithmetic aver- calculate in the ideal hypothetical situation in which ages of the value shares in the two periods. It is a sym- they have complete information about prices and quan- metric index and a superlative index. Also known as the tities in the two periods being compared. In practice, “Törnqvist-Theil price index.” the target index is likely to be an economic index as pt p j q j approximated by a superlative price index (such as a ln P __1 ( s 0 st) ln ___ where s j ______; Fisher, Törnqvist, or Walsh) or a basket or Lowe index T 2 p 0 p j q j (usually a Laspeyres) that has a clear meaning and can j t, 0. be easily explained to users. pt ______(s0s t) Also written as P ___ 2 . T p 0 Taxes on products The taxes on goods or services produced as the outputs Total factor productivity of resident enterprises that become payable as the result of the production of those goods or services. They are Relates a measure of output to a measure of combined payable per unit of good or service produced. primary inputs. Rates of change of multi-factor productivity are typically measured residually as that change Terms of trade index in output that cannot be accounted for by the change in combined inputs. The ratio of the export price index to the import price index: XPI/MPI. A terms of trade index shows the Transaction relationship between the prices at which a country sells The buying and selling of a good or service on terms its exports and the prices it pays for its imports. If the mutually agreed by the buyer and seller. prices of a country’s exports rise relative to the prices of its imports, its terms of trade are said to have moved in Transaction price a favorable direction, because, in effect, it now receives more imports for each unit it exports. See “market price.”

Test approach Transfer price See “axiomatic approach.” A price adopted for bookkeeping purposes that is used to value transactions between affiliated enterprises inte- Time aggregation problem grated under the same management at artificially high or low levels in order to effect an unspecified income How to define and obtain the basic price and quantity payment or capital transfer between those enterprises. for a precisely specified product included in a price See “intra-company transfer price.” index given that, during the time period under consideration, individual buyers may buy the same product Transitivity at different prices and an individual seller may sell the same product at different prices. See “circularity.”

Time reversal test “True” index A test under the axiomatic approach that requires that if A theoretically defined index that lies between the the prices and quantities in the two periods being com- Laspeyres price index and the Paasche price index. pared are interchanged, the resulting price index is the For a theoretical XPI, the Laspeyres price index is the reciprocal of the original price index. When an index lower bound and the Paasche price index is the upper satisfies this test, the same result is obtained whether bound. For a theoretical MPI, the situation is reversed: the direction of change is measured forward in time the Paasche price index is the lower bound and the

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Laspeyres price index is the upper bound. See “FIOPI,” Unit value “mix” problem “FOIPI,” and “substitution bias.” That the change in the value of a unit value index, thereby implying a “price change,” arises from a change Unequivocal price index in the relative quantities of the items covered without See “‘pure’ price index.” any change in their prices.

Unequivocal quantity index Universe See “‘pure’ quantity index.” For an XPI, the population of exporters and exports to be sampled. For an MPI, the population of importers Unilateral price index and imports to be sampled.

One approach to index numbers involves decompos- Upper-level index ing a value aggregate for one period into two numbers: one representing the price level in the period and See “higher-level index.” the other representing the quantity level in the period. The resulting price index is called a “unilateral price Value index.” “Unilateral” refers to the assumption that the At the level of a single homogeneous good or service, price index depends only on price and quantity data value is equal to the price per unit of quantity multi- of the period under consideration. It is also called an plied by the number of quantity units of that good or “absolute index number.” service. Unlike price, value is independent of the choice of quantity unit. Values are expressed in terms of a Unique product common unit of currency and are commensurate and A product that is manufactured only once to the speci- additive across different products. Quantities, on the fication of an individual customer. other hand, are not commensurate and additive across different products even when measured in the same Unit value bias kind of physical units.

The ratio of a unit value index to a price index calcu- Value added lated with an acceptable index number formula such as the Fisher price index. The term “bias” assumes a sys- Gross value added is the value of output less the value tematic divergence. If the divergence is not systematic, of intermediate consumption. It is a measure of the then the term “error” is more appropriate. See “bias.” contribution to GDP made by an individual producer, industry, or sector. It is the source from which the Unit value index primary incomes of the SNA are generated. Net value added is the value of output less the values of both An index that measures the change in the average unit intermediate consumption and consumption of fixed value of items comprising an individual commodity capital. class. The items may not be homogeneous, and the unit value index may therefore be affected by changes in Value updating the mix of items (compositional quality and quantity changes) as well as by changes in their prices. Unit value See “price updating.” indices are not price indices, but serve as surrogates Value weights for price indices. A unit value elementary index, PU, is given for a price comparison between the current period The measures of the relative importance of products in 1 and reference period 0 over m 1, . . . . , M items in the index. The weight reference period values or shares period 1 and over n 1, . . . , N items in period 0 by: of the various elementary aggregates covered by the index. Being commensurate and additive across different M N 1 1 0 0 products, value weights can be used at aggregation levels pmqm p nqn m_ 1 n_ 1 above the detailed product level. See “quantity weights.” PU M N where prices and 1 0 qm qn VAT m1 n1 1 1 quantities are given respectively as pm and qm for Value-added tax. A wide-ranging tax usually designed 0 0 period 1, and pn and qn for period 0. to cover most or all goods and services. It is collected

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©International Monetary Fund. Not for Redistribution GLOSSARY in stages by enterprises that are obliged to pay to gov- tary price indices when these are averaged to obtain ernment only the difference between the VAT on their price indices or higher-level indices. Although quanti- sales and the VAT on their purchases for intermediate ties are frequently described as weights, they cannot consumption or capital formation. VAT is not usually serve as weights for the prices of different types of charged on exports. products whose quantities are not commensurate and that use different units of quantity that are not addi- Virtual corporation tive. The term “quantity weights” is generally used loosely to refer to the quantities that make up the bas- A partnership among several enterprises sharing com- ket of goods and services covered by an index and plementary expertise created expressly to produce a included in the value weights. See “quantity weights” product with a short–prospective life span, with the and “value weights.” production of the product being controlled through a computerized network. The corporation is disbanded Wholesale price index upon the conclusion of the product’s life span. A measure that reflects changes in the prices paid for Volume index goods at various stages of distribution up to the point of retail. It can include prices of raw materials for The weighted average of the proportionate changes in intermediate and final consumption, prices of inter- the quantities of a specified set of goods and services mediate or unfinished goods, and prices of finished between two periods of time. The quantities compared goods. The goods are usually valued at purchasers’ must be homogeneous, while the changes for the dif- prices. For historical reasons, some countries call ferent goods and services must be weighted by their their PPI a “wholesale price index,” even though economic importance as measured by their values in the index no longer measures changes in wholesale one or both periods. prices.

Walsh price index XMPIs A price index defined as the change in the value of a Export and import price indices. The export price index fixed intermediate basket of quantities. The quantities (XPI) measures the average change over time in the of the intermediate basket are geometric averages of the prices of the goods and services supplied by residents quantities of the base and current periods. It is a sym- of the economic territory of a country and used by non- metric index and a superlative index. residents (the rest of the world). The import price index _1 (MPI) measures the average change over time in the pt q t q 02 P _ prices of goods and services supplied by nonresidents W _1 p0 q t q 02 (the rest of the world) and used by residents of the economic territory of a country. Weight reference period XPI The period of which the value shares serve as weights for a Young index, or of which the quantities make up Export price index. See “XMPIs.” the basket for a Lowe index. It does not have to have the same duration as the periods for which the index Year-over-year indices is calculated, and in the case of XMPIs is typically Year-over-year monthly indices: Indices in which a longer, a year or more, rather than a month or quarter. given month in the current period is compared with the There may be no weight reference period when the corresponding month in the base period. For example, value shares for the two periods are averaged, as in a if the current period is 2001 and the base period is Törnqvist index, or when the quantities are averaged, as 2000, January 2001 would be compared with January in a Marshall-Edgeworth index and a Walsh index. See 2000, February 2001 with February 2000, March 2001 also “base period.” with March 2000, etc. There are in effect 12 separate series of indices, one for each month of the year. Year- Weights over-year monthly indices are a means of dealing with A set of numbers summing to unity that are used to seasonal variation. It is assumed that the patterns of calculate averages. Value shares sum to unity by defi- seasonal variation remain the same month by month, nition and are used to weight price relatives or elemen- year after year.

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• 0 1 Year-on-year annual indices: The weighted average of When qn qn qn 2, we get the Marshall- the 12 year-over-year monthly indices. The weights are Edgeworth index; and monthly value (revenue) shares of the base year or the •When q q 0 qt12 , we get the Walsh index. current year or the average of the two, depending on the n n n index number formulation. In practice, official statistical agencies frequently work with a Lowe index in which q q b, where Young index n n b denotes some period before 0. This manual specifically refers to the Young price 2. A useful feature of a basket price index for index as a weighted arithmetic average of price ratios period t relative to period 0 is that it can be between the current period t and the price reference decomposed, or factored, into the product of two period 0, where the weights are value shares in a (usu- or more indices of the same type: for instance, as ally) preceding period b. the product of an index for period t – 1 relative to period 0 and an index for period t relative to p t P sb _ . period t – 1. Formally, YO p 0

t t1 t p qn p qn p qn More generally, a Young index can be defined as a ______n ______n ______n . (G.2) 0 0 t1 weighted arithmetic average of price ratios between the pnqn pnqn pn qn current period t and the price reference period, where the weights are value shares (s ) that sum to 1. The n The index on the right side of equation (G.2) is Young index is thus defined as described as a “two-stage index.” It is identical to the single-basket index that compares period t p t P s ___ . directly with period 0, provided the same set of YO n p 0 prices is available and used in all three periods, 0, t – 1, and t. Special cases include the Laspeyres index when p0q0 In particular, when q q 0, equation (G.2) turns s s0 _ and the Paasche index when s are n n n p0 q 0 n into hybrid weights using period t quantities valued at p0qt t 0 t1 0 t 0 0t _ p q p q p q period 0 prices, that is, s n s . ______n n _ n n _n n . (G.3) p0qt 0 0 0 0 t1 0 pnqn pnqn pn qn Appendix: Some basic index number formulas and terminology The left side of equation (G.3) is a direct Las- 1. A basket price index (called here a Lowe price peyres index. Note that only the first of the index after the index number pioneer who first indices that make up the “two-stage Laspeyres” proposed this general type of index) is an index index on the right side is itself a Laspeyres index, of the form1 the second being a Lowe index for period t relative to period t – 1 that uses the quantity basket p t q of period 0 (not t – 1). Some official statistical _n n , (G.1) agencies describe the two-stage Laspeyres index p 0 q n n given in equation (G.3) as a “modified Las- which compares the prices of period t with those peyres” index. of (an earlier) period 0, using a certain speci- 3. In a time-series context, say when t runs from 1 fied quantity basket. The family of Lowe indi- to T, the series ces includes some well-known indices as special cases: 1 2 T p qn p qn p qn _n , _n , . . . . . , _n (G.4) •When q q0, we get the Laspeyres index; 0 0 0 n n pnqn pnqn pnqn • t When qn qn, we get the Paasche index; is termed a series of fixed-basket price indices. 0 In particular, when qn q n , we get a series of 1The sums are understood to be running over all items n. Laspeyres indices.

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0 t 0 t 4. At period T, one could change to a new quantity (ii) wn pn q n pn qn , (G.10) basket q’ and calculate from this period onward that is, hybrid period (0, t) value shares, we T1 T2 T3 p qn p qn p qn get the Paasche index. One could also think _n , _n , _n , . . . . . (G.5) T T T of setting pn qn pn qn pn qn b b b b b (iii) w n s p q p q , (G.11) To relate the prices of periods T 1, T 2, T n n n n n b 3 3, . . . . to those of period 0, chain linking can be that is, period value shares. used to transform (G.5) into a series of the form Instead of working with equation (G.11), one frequently works with T T1 T T2 p qn p q p qn p qn ______n _ n n, ______n _n , (iv) w sb p 0 pbs b p 0 pb 0 T 0 T n n n n n n n pnqn pn qn pnqn pn qn 0 b 0 b T T3 pn qn p n qn, (G.12) p qn p q ______n _n n, . . . . . (G.6) 0 T that is, price-updated period b value shares. pnqn pn qn This could be termed a series of chain-linked Note that hybrid value shares, such as equation fixed-basket price indices. In particular, when (G.10) or (G.12), typically are not constructed by 0 T qn q n and, qn q n we get a series of chain- multiplying sums of prices of one period times linked Laspeyres indices. Because the basket quantities of another period. They must be con- was changed at period T, the adjective “fixed” structed using price relatives and actual expendi- applies literally over only a certain number of ture shares, as in the first part of equation (G.12). time intervals. The basket was fixed from period 1 6. In a time-series context, when t runs from 1 to T, to period T and is fixed again from period T 1 the series onward. When the time intervals during which the basket is kept fixed are of the same length, 1 0 2 0 wn pn pn , wn p n pn , . . . . . , such as one, two, or five years, this feature can T 0 be made explicit by describing the index as an wn pn pn (G.13) annual, biannual, or five-yearly chain-linked is termed a series of fixed weighted arithmetic- fixed-basket price index. average price indices. In particular, when the 5. A weighted arithmetic2-average(-type) price weights are equal to the period 0 expenditure index (called here a Young price index after shares, we get a series of Laspeyres indices, and another index number pioneer) is an index of the when the weights are equal to the price-updated form period b expenditure shares, we get a series of Lowe indices in which the quantities in the bas- t 0 wn pn pn (G.7) ket are those of period b. which compares the prices of period t with those 7. In period T, one could change to a new set of of period 0, using a certain set of weights adding weights w, and calculate from this period onward up to 1. Note that any basket price index in the w p T1p T , w p T2p T , form of equation (G.1) can be expressed in the n n n n n n T3 T form of equation (G.7), because w n pn pn , . . . . , (G.14) t 0 t p qn p qn p or, using linking to relate the prices of periods ______n _n _ n . (G.8) 0 0 0 T 1, T 2, T 3, . . . . to those of period 0, pnqn pnqn pn T 0 T1 T wn pn pn w n pn pn , In particular, when T 0 T2 T wn pn pn w n pn pn , . . . . . (G.15) (i) w s0 p0 q0 p0 q0 , (G.9) n n n n n n This could be termed a series of linked fixed- that is, period 0 value shares, equation (G.7) weighted arithmetic-average price indices. In 0 T turns into the Laspeyres index. When particular, when wn sn and w n sn , we get a

2To distinguish from geometric or other kinds of average. 3This manual specifically refers to this as a Young index.

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series of chain-linked Laspeyres indices. When fixed from period 1 to period T and are again b 0 b b 0 b b T b wn sn pn pn sn pn pn and w n s n pn pn fixed from period T 1 onward. When the time b T b sn pn pn for some later period b’, we get a intervals during which the weights are kept fixed series of chain-linked Lowe indices. are of the same length, this feature can be made explicit by adding a temporal adjective, such as 8. Again, because the weights were changed at biannual or five-yearly. When the intervals are period T, the adjective “fixed” applies literally annual, the term “chain-linking” is used. over only certain time intervals. The weights were

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A revenue weights, 11.108 sampling frame, 11.106 Additivity test Annual basket indices description, 1.205, 17.62 carryforward of unavailable prices for seasonal products equation, 17.62 and, 23.78–23.84 Fisher price index and, 1.207 forecasting rolling-year annual indices using month-to- invariance to proportional changes in current prices test month annual basket indices, 23.91–23.97 and, 1.206 imputation of unavailable prices and, 23.85–23.86 unequivocal quantity index, 17.63–17.64 ANZSIC, 2006. See Australian and New Zealand Standard Agriculture Industrial Classification, 2006 analysis of monthly price changes, 11.30–11.40 Apparel. See Clothing industry annual chaining, 11.26–11.27 Artificial data sets annual price index, 11.24–11.25, 11.42 asymmetrically weighted index number formulas, Canadian FPPI, 11.14–11.44 20.125–20.130 choice of time reference, 11.40 for domestic final demand, 20.115–20.145 Edgeworth-Marshall cross and, 11.32, 11.34, 11.36–11.37 gross output treatment, 20.101 Fisher price index and, 11.35 index number formulas and, 20.121–20.124 linking at the annual index, 11.28–11.29 industry G prices and quantities, 20.93–20.98 month-to-month index over nonseasonal industry S prices and quantities, 20.99–20.106 commodities, 11.42 industry T prices and quantities, 20.107–20.114 month-to-month index with maximum overlap, margin industry treatment, 20.101 11.42–11.43 real supply and use matrices framework, 20.79–20.86 pricing issues important in international trade, rolling-year annual indices and, 23.47–23.50 11.12–11.44 for seasonal goods and services, 23.5, 23.14–23.15, Rothwell formula and, 11.15–11.18 23.26, 23.30–23.34, 23.41, 23.47–23.50, 23.55–23.62, seasonal basket concept and, 11.23 23.80–23.81, 23.88, 23.96 seasonal commodities in the U.S. XMPI, 11.41–11.44 superlative indices and two-stage aggregation, 20.136–20.145 seasonal patterns of trade, 11.12 symmetrically weighted index number formulas, use of receipts in the absence of quantities sold, 11.39 20.131–20.135 volatility in price and production from year to year, 11.12 Turvey’s artificial data set, 23.5, 23.14–23.15, 23.26, Walsh cross and, 11.36 23.30–23.34, 23.41, 23.47–23.50, 23.55–23.62, year-over-year price index, 11.42 23.80–23.81, 23.88, 23.96 Air passenger fares value supply and use matrices framework, 20.87–20.92 balance of payments and international indices for, 11.109 ASYCUDA. See Automated System for Customs Data foreign carrier index measures, 11.110 Australia import and export fares, 11.109 motor vehicle industry, 11.84–11.98 monthly price data source, 11.112 wool market indicator price, 11.12 revenue weights, 11.113 Australian and New Zealand Standard Industrial sampling frame, 11.111 Classification, 2006 Airfreight index description, 1.55 balance of payments and international indices, 11.103 Australian Bureau of Statistics commodities included, 11.105 benchmarking and, 13.93 data sources, 11.106–11.107 motor vehicle industry, 11.84–11.98 inbound and outbound index measures, 11.104 PPI for the clothing industry, 11.45

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Automated System for Customs Data identification of 12 groups of services, 4.10–4.12 bias and, 1.14 scope of XMPIs, 1.330 computerization of customs data and, 2.2 “services” definition, 4.9 standardization of units of measurement, 2.26 valuation issues, 4.21, 4.23–4.24 widespread use of, 2.70 Basic index calculations. See also Calculation of XMPIs Automated telephone data submission for questionnaires in practice benefits of, 7.48 calculation of higher level indices, 1.307–1.308 disadvantages of, 7.49 developing XMPIs and, 1.388–1.394 letter asking respondents to make a telephone call illustrative numerical data, 1.250–1.252 and, 7.48 optimal formulas for, 1.392 prerecorded dialogues for, 7.48 production and maintenance of higher-level indices, Axiomatic approach to index number theory. See also 1.309–1.312 specific tests stages in the process, 1.296–1.298 additivity test and, 1.205–1.207 unit value indices and, 2.5 average price of salt and pepper example, 1.191 Basic index number theory. See also Axiomatic approach to basic framework and some preliminary tests, index number theory; Economic approach to index 17.94–17.98 number theory; Elementary price indices; Stochastic bilateral indices and some early tests, 17.30–17.36 approach to index number theory; specific indices, Carli index, 1.277 e.g., Fisher price indices compared with the economic approach to index number annual weights and monthly price indices, 16.34–16.65 theory, 18.1, 18.28–18.29 chained indices, 1.180–1.187, 16.77–16.97 description, 1.188, 16.19, 17.1–17.4 choice of formula, 1.253–1.258 Dutot index, 1.190–1.191, 1.276 data editing, 1.313 elementary price indices and, 1.275–1.278, 10.23–10.28, decomposing current value changes using Laspeyres and 21.40–21.53 Paasche, 1.156–1.157 factor reversal test and, 1.204 decomposition of value aggregates into price and quantity homogeneity tests, 17.37–17.41, 17.99–17.105, 17.132 components, 16.7–16.18 invariance tests, 17.106–17.111 description, 1.142–1.187, 1.144 Jevons index, 1.276, 1.278 fixed-base versus chain indices, 16.77–16.97 Laspeyres indices and, 17.57–17.58, 17.61 fixed-basket indices, 1.180–1.186, 16.3, limitations of, 1.202 16.12–16.33, 21.20 Lowe index and, 17.130–17.134 fixed-basket versus chain indices, 1.180–1.187 mean value test, 17.47–17.49, 17.112 geometric Young, Laspeyres, and Paasche indices, monotonicity tests, 17.50–17.52, 17.113, 17.132 1.172–1.175 overview, 17.5–17.9 interrelationships between fixed-basket indices, Paasche indices and, 17.57–17.58, 17.61 1.163–1.168 ranking of indices using, 1.199–1.202 microeconomic theory and, 16.1–16.2 symmetry tests, 17.42–17.46, 17.106–17.111 overview, 16.1–16.6 tests for, 1.189–1.190, 1.276–1.278, 16.19–16.24 price indices based on baskets of goods and unilateral price indices and, 17.11–17.29 services, 1.145 unit value indices, 2.17–2.31, 2.82 pure price index theory, 16.25–16.32 value ratio decomposition approach, 17.31–17.33 purpose of an index number, 1.145 weighting tests, 17.114–17.119 second-best indices, 1.143 Young index and, 17.130–17.134 superlative indices, 1.142 symmetric averages of fixed-basket price indices, 16.19–16.33 B symmetric indices, 1.176–1.179 weighted type, 1.142 Background information Bean, Louis H., 11.15 export and import price indices, 3.1–3.18 Bean and Stine Type C index. See Rothwell index producer price indices, 3.14–3.16 BEC Rev. 3. See Classification by Broad Economic wholesale price index, 3.13–3.14 Categories, Revision 3 Balance of Payments Manual, Sixth Edition Bias. See Errors and bias in XMPIs; specific indices cases in the balance of payments definition of general Bowley, Arthur L. merchandise, 4.5 symmetric basket theory and, 16.22 conceptual framework for XMPIs, 1.34 BPM6. See Balance of Payments Manual, Sixth Edition exclusions of cases from general merchandise, 4.6 Business censuses “goods” definition, 4.3 establishment surveys and, 1.64–1.66

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©International Monetary Fund. Not for Redistribution EXPORT AND IMPORT PRICE INDEX MANUAL: THEORY AND PRACTICE

Business registers imputation method and, 8.80, 8.83 sampling issues in price collection and, 6.62, inequalities, 21.34–21.35 6.64–6.65 intransitivity of, 10.19, 10.43 shortcomings to the use of, 1.68 invariance to changes in the units of measurement test updating, 6.65 and, 10.23 weight information source, 1.67 Jevons index and, 21.38 Laspeyres indices and, 1.294, 10.32 missing prices and, 10.68–10.69 C product reversal, time reversal, and transitivity tests and, 1.277 Calculation of XMPIs in practice. See also Basic stochastic approach to index number theory and, 17.74 index calculations time reversal test and, 1.277, 10.23, 10.43, 12.23 alternatives to fixed-weight indices, 10.165–10.171 transitivity test and, 1.277, 10.23, 10.40 change of index reference period, 10.131–10.132 upward bias of, 8.80, 12.23 data editing, 10.172–10.211 Carruthers, Sellwood, and Ward indices decomposition of index changes, 10.161–10.164 Carli index and, 21.38 factoring the Young index, 10.129–10.130 elementary index number formula, 21.30 higher-level indices, 10.93–10.171 Jevons index and, 21.39 introduction of new weights and chain linking, time reversal test and, 21.32 10.133–10.160 Carryforward method of quality adjustment overview, 10.1–10.6 annual basket indices with carryforward of unavailable price indices for elementary aggregates, 10.7–10.92 prices for seasonal products, 23.78–23.84 price updating of trade value weights, 10.111–10.128 description, 8.99 stages in, 10.3, 10.7 replacing carryforward annual basket indices with their target indices, 10.93–10.99 imputed counterparts, 23.94 XMPIs as weighted averages of elementary indices, temporarily missing prices and, 10.51, 10.54 10.100–10.110 Central Product Classification Canada BPM6 groupings of services and, 4.11 wholesale price index and, 3.13 coverage of, 4.62 Canadian Farm Producer Price Index description, 1.53 analysis of monthly price changes, 11.30–11.40 International Standard Industrial Classification of All annual chaining, 11.26–11.27 Economic Activities and, 4.63 annual price index, 11.24–11.25 recommendation for the use of, 4.56 choice of time reference, 11.40 treatment of specific products and issues and, 11.3 linking at the annual index, 11.28–11.29 valuation of goods and, 4.38 monthly weighting pattern calculation, 11.19 Chained indices seasonal baskets, 11.15–11.23 agricultural products, 11.26–11.27 seasonal commodities, 11.14 annual chaining, 10.168–10.169 use of receipts in the absence of quantities sold, 11.39 appropriate uses for, 16.86 Canadian FPPI. See Canadian Farm Producer Price Index artificial data sets and, 20.129–20.130, 20.134–20.135, Carli index 20.139–20.145 artificial data sets and, 20.121–20.124 calculation of, 10.139–10.142 axiomatic approach and, 21.52–21.53 chain linking elementary aggregates, 10.133–10.160 calculation of, 1.300 circularity test and, 16.89–16.96 calculation of elementary price indices, 10.14–10.21 description, 1.180–1.182, 16.78–16.80 Carruthers, Sellwood, and Ward indices and, 21.38 desirability of, 1.243 consistency in aggregation, 10.49 direct counterparts and, 16.97 cross-elasticities of supply and, 10.34, 10.38, 10.40 direct indices and, 10.42–10.47 cross-item elasticities of substitution between different Divisia index, 1.187, 8.189 items and, 1.293 example of, 10.140–10.141 description, 1.210, 10.14 fixed-base indices and, 16.77–16.97 direct form, 10.44 hedonic analysis and, 8.163, 8.165, 22.57 disadvantages, 1.277, 10.28 hedonic indices and, 8.188–8.190 Dutot index and, 1.273, 21.36–21.39 important features of, 10.140 equations for, 21.26, 21.78–21.79 linking coefficients and, 10.143–10.144, 10.153 Fisher price index and, 1.294, 21.32 long- and short-term links, 10.157–10.160 harmonic average and, 1.277 matched-models method and, 9.15–9.16 harmonic means and, 1.303 merits of, 16.77–16.97

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month-to-month indices, 10.15 notes on item specification, 7.33 new goods and services and, 9.15–9.16 purpose of, 7.31–7.32 path dependent concept, 1.184 requirement for detailed specifications, 7.29 price bouncing and, 16.85 unique commodities, 7.81–7.84 price fluctuations and, 1.185 Commodity substitutions and new goods recalculating monthly indices and, 1.183 new goods and services, 1.140–1.141 rolling-year annual indices for seasonal products, 23.49, replacement commodities, 1.137–1.139 23.51–23.54 replacement universe definition, 1.138 seasonal fluctuations and, 1.185 sample rotation and, 1.139 spatial context and, 16.88 Comparable replacement method of quality adjustment treatment of quality change and, 8.186–8.192 description, 8.58, 8.97 updating quantities and, 1.198 Dutot index and, 8.194, 8.196 updating weights, 1.186 obsolete commodities and, 8.148 year-over-year annual indices for seasonal products, Computer industry 23.37, 23.41–23.44 fixed-input output export price index and, 8.49–8.51 year-over-year monthly indices for seasonal products, hedonic analysis, 1.130–1.131, 8.117–8.122, 8.192, 23.30–23.34 11.75–11.80 c.i.f. price. See Cost, insurance, and freight price matched-models method example, 8.158 Circularity test pricing issues important in international trade, chained indices and, 16.89–16.96 11.68–11.83 equation, 17.132, 21.45 rapid postsample changes in output, 11.73 unit value indices and, 2.28 updates of cross-sectional models, 11.81–11.82 Classification by Broad Economic Categories, Revision 3 Computers description, 1.53 calculation of price indices and, 13.73 Classification of Individual Consumption by Purpose categories of, 11.71 description, 21.15 classification problems, 11.72 Clothing industry difficulty of measuring price changes, 1.48 aspects of clothing, 11.47 general-purpose, 11.70 commodity classifications, 11.45 programming experience of XMPI program difficulty of measuring price changes, 1.48 managers, 13.32 fashion changes and, 11.54, 11.59 repricing process quality control and, 13.66 functional type of clothing, 11.46 U.S. Producer Price Index estimation of price changes, missing items and prices, 11.51, 11.59 11.68–11.83 pricing issues important in international trade, value of additional units of RAM, 1.387 11.45–11.59 XMPI organization and, 13.31–13.32 quality change factors, 11.53–11.56 Confidentiality issues respondent selection, 11.48 data from establishment surveys, 14.54–14.58 seasonal variations in trade, 11.50–11.52, 11.58 publication and dissemination of data and, specification selection, 11.49 14.54–14.62 COLI. See Cost-of-living indices questionnaires and, 7.103 College Board sampling issues in price collection and, 6.39 data source for calculation of indices for export Constant quantities test. See Fixed-basket or constant education, 11.127 quantities test Commensurability test. See Invariance to changes in the Consumer Price Index Manual units of measurement test economic approach to index number theory and, 18.14 Commodities that have permanently disappeared and establishment surveys, 1.79 their replacements XMPI Manual and, 3.32–3.33 examples, 10.62 Consumer price indices overlap method and, 10.65–10.66 choice of method for dealing with missing commodities reasons for disappearance, 10.60 and, 8.6 timing of replacements, 10.61 compared with XMPI, 1.33 Commodity reversal test cost-of-living index and, 2.32 equations, 17.42, 17.106, 17.132 description, 1.28, 5.35, 15.2 Commodity specifications hedonic analysis and improvements in, 8.145 changes in, 7.20, 7.79–7.80 household purchases of goods and services and, 5.35 criteria affecting the price of a commodity, 7.32 import data and, 5.36 industries excluded from, 7.34 importance of missing prices, 8.8 initialization process, 7.30 updating weights, 1.312

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Consumption of goods and services. See also Coverage of as properties of the value aggregate, 4.2 goods and services; New goods and services; Seasonal purpose of the chapter, 1.38 goods and services regional classification, 1.54 expenditure aggregate of CPI in the use of income scope of XMPIs, 1.39, 1.330 accounts, 15.38 statistical units, 1.49–1.50 hierarchy of household consumption aggregates, transfer and subsidized prices, 1.47 15.34–15.36 treatment of specific types of transactions and prices, 1.48 individual consumption, actual consumption, and unit values and shipping quantities, 1.46 household consumption expenditures, 15.29–15.31 valuation, 4.14–4.55 monetary and imputed expenditures, 15.32–15.33 virtual corporations and, 1.50 product detail in the use of income accounts, 15.37 Coverage of goods and services. See also Consumption of use of income accounts, 15.28 goods and services; New goods and services; Seasonal Continuity test goods and services equations for, 17.34, 17.98, 17.132, 21.41 BPM6 definition of services, 4.9–4.12 Cost, insurance, and freight price cases in the balance of payments definition of general description, 1.42, 3.38, 11.154 merchandise, 4.5 International Merchandise Trade Statistics: Concepts and change of ownership and, 4.4 Definitions and, 5.7 data sources, 4.4 price basis and, 11.154 definitions of “goods,” 4.3 United Nations guidelines, 4.15, 4.18 exclusions of cases from general merchandise, 4.6 valuation and, 4.45–4.47 goods for resale by travelers while on visits, 4.5 Cost-of-living indices goods sent abroad for processing, 4.7 consumer price index and, 2.32 goods under merchanting, 4.8 description, 8.39, 8.42 services, 4.9–4.13 economic theory and, 3.7, 18.99–18.127 travel services, 4.12 effects on household cost-of-living indices of changes in CPA Ver. 2008. See EUROSTAT Classification of the prices of directly imported goods and services, Commodities by Activity 2008 Version 1.324, 24.106–24.135 CPC. See Central Product Classification export price indices and, 2.32 CPI. See Consumer Price Index Manual optimizing behavior on the part of households Crude oil tanker freight services and, 18.116 commodities included, 11.114 single household case basic framework, 24.106–24.110 data source, 11.116 treatment of quality change and, 8.39 international services definition and, 11.115 unit value indices and, 2.32 trade volume weights, 11.117 Country of origin or destination Crude petroleum and gasoline exportation of a commodity from more than one country difficulty of measuring price changes, 1.48 with no price difference, 11.134 import and export gasoline price indices, 11.65 importance of data collection, 11.130 pricing issues important in international trade, 11.60–11.65 importation of a commodity from more than one country reference period, 11.63 with no price difference, 11.133 secondary source data, 11.64 imports and, 11.131 spot prices for gasoline, 11.64 overall price trends and, 11.136 transaction data, 11.61 tracking as part of the commodity description, 11.135 U.S. Bureau of Labor Statistics methodology to measure transactions between related parties, 11.132 price changes, 11.60–11.65 Coverage, valuation, and classifications Currency conversion commodity classifications, 1.52 calculating a foreign currency price index, 11.142 coverage of goods and services, 4.3–4.13, 12.25–12.30 data conversion using the exchange rate on the date of the customs data, 5.15–5.18 transaction, 11.140 developing XMPIs and, 1.334–1.340 expression of XMPIs in foreign currency, 11.141 difficulty of measuring price changes, 1.48 Customs data general purpose of XMPIs, 1.39 access to, 5.10 industrial classifications, 1.55 accuracy and, 5.9 international standard classification systems, 1.51, administrative data, 1.59–161, 1.312, 4.4, 5.13–5.18, 1.53–1.55, 4.56–4.67 6.31–6.32, 7.1, 12.2, 12.53–12.56 International Transactions Reporting System coverage commodities not covered by, 1.61 variations, 5.19 computerization of, 2.2, 5.9 population coverage, 1.40–1.41 cost, insurance, and freight price, 1.42, 3.38, 4.15, 4.18, price coverage and valuation, 1.42–1.45 4.46–4.47, 5.7

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coverage of, 5.15–5.18 treatment of missing price observations, 10.206–10.211 customs documents, 1.57, 1.259, 2.2, 2.54, 3.56, 5.6, 6.37 treatment of outliers, 10.205 customs export declarations and import tariff forms, 1.59, Tukey algorithm and, 10.194 3.56, 4.19, 4.45–4.47, 5.3–5.6, 12.38 verifying and correcting data, 10.200–10.211 description, 5.3 Data sources. See also Customs data; Questionnaires e-commerce and, 2.35 administrative, 5.3–5.24, 7.1 elimination of customs checks in the European Union, 2.34 consumer price index, 5.35–5.36 establishment surveys and, 1.58, 1.62–1.76, 5.25–5.36 customs data, 5.3–5.18 evidence of errors and bias in using unit value indices data needs, 1.56 based on, 1.19–1.20 for developing XMPIs, 1.326 “free on board” price, 1.42, 3.38, 4.13, 4.15, 4.25, 4.48, electronic transaction data, 21.75–21.84 11.153–11.154 export and import price surveys, 5.26–5.33 general trade system and, 5.17 government agencies, 5.20–5.24, 11.60 household and traveler surveys, 1.72 government regulatory agencies, 7.63 International Transactions Reporting System, 1.60–1.61 International Transactions Reporting System, 5.19 national accounts, 1.73–1.76 price collection, 7.35–7.100 negotiations between governments and foreign capital producer price index, 5.34 providers and, 3.45 published sources, 7.59–7.62 principal items on customs documents, 5.6 summary, 5.37 quantity concept, 5.12–5.13 survey sources, 5.25–5.36, 7.1 sampling issues in price collection, 1.82, 6.11, 6.17–6.39 for trade statistics, 4.23 special trade system and, 5.16 valuation, 4.43–4.50 statistical value in merchandise trade statistics, 5.7–5.11 Deletion routines timeliness of, 5.9 unit value indices and, 2.70–2.72 underreporting and misreporting problems, 5.18 Determinateness as to prices test unit value indices and, 1.9, 2.2, 2.3, 2.11, 2.13, 2.20, description, 17.127 2.26, 2.34–2.35, 2.72, 2.78, 5.10, 5.14 Diewert Lawrence index updating weights, 1.312 effects on real income of a change in real export prices, uses for, 5.3 24.33–24.38, 24.90–24.92 validation procedures, 5.9 effects on real income of a change in real import prices, valuation data source, 4.45–4.48 24.66–24.71, 24.80, 24.90–24.92 Cutoff sampling justification for, 24.49 accuracy issues, 6.58 numerical equivalence of, 24.50–24.55 compared with probability sampling, 6.60 real-time approximations to the preferred measures, description, 6.44, 6.57 24.56–24.57 establishment surveys and, 5.29–5.30, 6.94, 6.99–6.105 terms of trade and, 24.90–24.92, 24.120–24.124, 24.130 practicality of, 6.59 Diewert Morrison index product selection, 6.103 decomposition for, 24.103–24.105 random sampling and, 1.83 effects on real income of a change in real export prices, 24.39–24.49, 24.93–24.105 effects on real income of a change in real import prices, D 24.72–24.77, 24.93–24.105 Hotelling’s Lemma and, 24.46, 24.75, 24.95 Dalén index numerical equivalence of, 24.50–24.55 elementary index number formula, 21.30 quadratic identity and, 24.43 Data editing. See also Output editing real-time approximations to the preferred measures, automatic deletion systems and, 10.188 24.56–24.57 checking by impact, 10.197–10.199 Shepherd’s Lemma and, 24.128 computer programs and spreadsheets and, 10.184 source of interest in, 24.41 data output checking, 10.197–10.199 terms of trade and, 24.72–24.80, 24.93–24.105, errors and outliers and, 10.173, 10.175, 10.180–10.211 24.125–24.135 filtering and, 10.186, 10.192–10.199 Discounts. See also Rebates identification of unusual price changes, 10.181 list prices and, 7.24, 7.65 nonstatistical checking of input data, 10.182–10.188 providing a larger quantity of a commodity for the same process of, 1.313, 1.316 price, 7.66 purpose of, 10.173 Divisia, François statistical checking of input data, 10.189–10.196 approach to index number theory, 3.8 steps in, 10.172, 10.175 index development, 16.69–16.70

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Divisia index Economic approach to index number theory description, 1.187, 8.189, 16.66 advantage of, 10.30 discrete approximations and, 16.66–16.76 applicability to export price indices, 18.50–18.51 Laspeyres indices and, 16.76 appropriate use of Laspeyres and Paasche indices, 1.219 Paasche indices and, 16.75–16.76 basis for, 1.220 price and quantity indices, 16.66–16.72 compared with the fixed-basket, axiomatic, and stochastic usefulness of, 16.76 approaches, 18.1, 18.28–18.29 Documentation of data conceptual basis of theoretical index numbers central maintenance of data, 13.88 and, 1.222 importance of, 13.81 cross-elasticities of supply and, 10.34–10.39 items included, 13.89 description, 1.279 production schedules and, 13.84 elementary price indices, 1.279–1.283, 1.304, staff and, 13.82 10.29–10.41, 21.54–21.64 standard electronic software for, 13.87 export price index for a single establishment, updates and, 13.86 18.28–18.51 Drobisch index Fisher price index as an approximation to an economic Fisher price index and, 20.133 export output price index, 18.41–18.45 Duties heterogeneous elementary aggregates, 1.289–1.295 including in the measurement of XMPIs, import price indices, 18.99–18.127 11.137–11.138 input import price indices, 10.40–10.41 obtaining information to remove from the price used in input price index and, 1.222, 1.247–1.249 the index calculation, 11.139 intermediate input import price indices, price basis and, 11.158 1.247–1.249, 18.114 Dutot index new goods and services and, 22.85–22.104 average price of salt and pepper example, 1.191 nonresident’s perspective, 18.5–18.13 axiomatic approach and, 21.51, 21.83 objective of, 10.29 calculation of, 1.300 optimizing behavior, 2.32 calculation of elementary price indices, 10.14–10.20 output export price indices, 10.33–10.39 Carli index and, 1.273, 21.36–21.39 output price index and, 1.220, 1.223–1.224, 2.32 chained and direct versions, 10.44 overview, 1.215–1.222, 18.26–18.27 changes in the patterns of production or purchases price data, 18.19–18.25 between two periods and, 1.287–1.288 problems involved in obtaining the correct commodity commensurability test and, 1.276 prices for establishments and, 18.20 comparable replacement method of quality adjustment production activity and, 18.4 and, 8.194, 8.196 pure price differences and, 1.280–1.283 consistency in aggregation, 10.49 resident’s perspective, 1.215–1.217, 18.5–18.127 cross-elasticities of supply and, 10.35 sets of homogeneous items, 1.284–1.288 description, 1.190, 1.287, 10.14 substitution bias, 1.218–1.219, 12.46–12.52 disadvantages of, 10.28 superlative export output price indices, 18.53–18.98 equations for, 21.26, 21.36, 21.78–21.79 theoretical export output price indices, 1.223–1.246 expression of, 1.272 theoretical formulations, 1.220 homogeneity of commodities and, 10.27 Törnqvist Theil price index and, 18.46–18.51 Jevons index and, 1.272, 21.37 transfer prices and, 19.7–19.104 Laspeyres indices and, 21.68, 21.71–21.72 unit value indices, 2.32–2.33, 2.82 Paasche indices and, 21.69–21.71 Edgeworth-Marshall index sampling approach, 21.83 agricultural products and, 11.32, 11.34, 11.36–11.37 sampling with base-period commodity inclusion description, 1.256, 16.28 probabilities, 21.65–21.70 potential problems with, 16.31 temporarily missing prices and, 10.57 Education time reversal test and, 10.23, 21.32 calculation of indices for export education, 11.127 transitivity of, 10.19, 10.43 EIA. See U.S. Energy Information Administration transitivity test and, 10.23 Electronic capture of data from discs advantages and disadvantages of, 7.56 Electronic data transfer E description, advantages, and disadvantages of, 7.57 Elementary aggregates EBOPS. See Extended Balance of Payments Services aggregation by product or activity classification, Classification 10.94–10.99

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alternative index formulas, 10.84–10.85 electronic transaction data and, 21.75–21.84 basic information level, 21.17 establishment surveys and, 1.260–1.295 calculation of price indices for, 10.7–10.92 harmonic average and, 1.269–1.270, 21.29 chain linking, 10.133–10.160 harmonic means and, 1.303 chained compared with direct indices, 10.42–10.47 homogeneity of commodities and, 1.284–1.288, 10.25 Cobb-Douglas preferences and, 1.290 ideal indices, 21.15–21.24 consistency in aggregation, 10.48–10.49 interrelationships between different elementary index construction of, 10.8–10.10 formulas, 1.268–1.274 cross-item elasticities of substitution between different missing commodities and, 10.46 items, 1.290–1.291 missing prices and, 1.302, 10.50–10.70 description, 1.299, 21.15 month-to-month indices, 10.15 electronic data and, 10.91–10.92 nonoverlapping qualities of adjustment, 1.119 establishment surveys and, 1.260–1.295 numerical relationships between frequently used estimation of elementary price indices for, 1.259 elementary indices, 21.34–21.39 frequency of reweighting, 10.136–10.138 overview, 21.1–21.14 goods definitions, 6.28 “price bouncing” and, 1.300, 10.85 grouping of individual commodities, 10.10 rankings of ratios and, 1.270 harmonic mean and, 10.84 revenue-maximizing establishments and, 21.63 Harmonized System codes and, 6.28, 21.15 sampling approach, 21.65–21.84 heterogeneity of commodities within, 1.264–1.265 sampling error and, 21.22 heterogeneous, 1.289–1.295 sampling properties, 10.21–10.22 ideal aggregate, 21.16–21.24 single-stage and two-stage indices, 8.205–8.207 interrelationships between different elementary index stages for calculation of XMPIs, 1.259 formulas, 1.268–1.274 stochastic approach, 21.85–21.92 introduction of new aggregates, 10.145–10.147 Taylor series approximations, 21.36, 21.38, 21.79–21.80 introduction of new weights, 10.133–10.160 time aggregation problem, 21.3, 21.18, 21.22 price change measurement, 1.78–1.79 unit value indices and, 2.5, 21.3–21.4, 21.22 sample rotation and, 9.11 unweighted elementary price index calculation, services definitions, 6.29 10.11–10.41, 21.2 stratification of, 1.77, 1.83, 1.259 upward bias of, 21.80 testing customs elementary aggregates for multiple used in practice, 21.25–21.33 elementary items, 6.17–6.34 XMPIs as weighted averages of, 10.100–10.110, 21.15 types of, 21.15 Errors and bias in XMPIs. See also specific indices typical contents, 10.9 administrative data sources and, 12.12, 12.53–12.56 unit value indices and, 2.5, 10.86–10.90 Automated System for Customs Data and, 1.14 unweighted elementary price index calculation, concepts of a true or good index, 12.22–12.24 10.11–10.41 coverage and, 12.10, 12.25, 12.27–12.30 weighting, 1.266–1.267 distinction between, 12.3, 12.14–12.21 Elementary price indices. See also specific indices formula and substitution bias, 12.9, 12.10, aggregating into higher-level indices, 10.96–10.110 12.46–12.52 arithmetic average compared with geometric average and Laspeyres indices and, 1.164, 1.218–1.219, harmonic average, 1.269–1.270, 21.29 1.225, 1.323 axiomatic approach to, 1.275–1.278, 10.23–10.28, lower-level substitution bias, 12.49–12.50 21.40–21.53 matched-models method and, 12.8, 12.10 basic index calculations, 1.299–1.306 new-establishment bias, 12.51 calculation using weights, 10.71–10.83 nonsampling error and bias, 12.20–12.21 chained month-to-month indices, 10.15 overview, 12.1–12.13 chaining and direct approaches, 1.300–1.301, Paasche indices and, 1.218–1.219, 1.323 10.42–10.47 quality change bias, 12.39–12.43 choice of formula, 1.274, 21.2, 21.8, 21.63 response error and bias, 12.37–12.38 consequences of using alternative formulas to sampling error and bias, 12.6–12.7, 12.10, 12.15–12.19, calculate, 1.300 12.32–12.36 consistency in aggregation, 1.305 scope for reducing, 2.38 cost-minimizing purchasers and, 21.63 sources of, 12.2, 12.4–12.5, 12.10 data sources, 1.259, 21.3 unit value indices and, 1.14–1.18, 2.3, 2.12–2.48, 21.3 description, 1.7, 1.58, 10.11, 21.1 upper-level substitution bias, 12.47–12.48 economic approach to, 1.279–1.295, 1.304, 10.29–10.41, valuation and, 12.10, 12.25, 12.31 21.54–21.64 world commodity price data and, 12.12, 12.57–12.64

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Establishment surveys. See also Treatment of quality change differences in production and option costs and, business registers, 1.67–1.68 1.127–1.128, 8.108–8.114, 8.149 compared with censuses, 1.69–1.71 expert judgment and, 1.128, 8.101–8.102 customs data and, 1.58, 1.62–1.76, 5.25–5.36 fertilizer example, 8.105–8.107 customs documents and the ITRS, 1.63 hedonic analysis, 8.115–8.145 cutoff sampling, 5.29–5.30, 6.94 importance of, 1.132 developing countries and, 6.96–6.97 motor vehicle example, 8.108 disaggregation and, 5.32 MPIs and, 1.108 elementary aggregates and, 1.260–1.295 pharmaceutical industry example, 8.104 elementary price indices and, 1.260–1.295 quantity adjustment, 1.126, 8.103–8.107 establishment or business censuses, 1.64–1.66 reliability of, 8.149 forms of, 5.25 XPIs and, 1.108 frequency of price collection and, 5.26 Export and Import Price Index Manual identification of elementary items and, 5.33 CPI and PPI manuals and, 3.32–3.33 introducing a new sample of establishments, 6.116–6.122 current revision, 3.23–3.29, 3.31, 3.35 introduction of a new establishment-based price index, Export and import price indices 2.78–2.80, 2.87 background and origins of, 3.1–3.18, 3.36–3.40 need for quality adjustments and, 1.104 basic questions concerning, 1.1–1.3 new goods and services, 9.1 central bank’s monetary policy and, 1.318 price change measurement, 1.79 commodity analysis, 3.60 probability sampling, 5.28 compared with unit value indices, 2.44 ranking products in order of importance, 6.100–6.101 compilation method overview, 1.4–1.6 recruiting establishments, 6.98, 6.123 description, 1.0, 3.36, 15.2 sample of eligible products within, 5.31 final expenditure price index, 3.62 sampled items, 1.262 gradualist approach to adopting, 1.25, 1.326–1.327, sampling issues in price collection and, 6.1, 6.2, 6.5, 2.75–2.77, 6.3 6.27–6.34, 6.86–6.122 importance of, 14.1 selecting products and transactions, 6.99–6.109 importance of missing prices, 8.8 selection of establishments, 6.89–6.95 index linking and, 3.11, 3.26 selection of individual commodities to be priced within industry aggregation, 3.58 selected establishments, 1.84 inflation and, 3.24, 3.27 standard methodology for, 5.27 Inter-Secretariat Working Group on Price Statistics, 3.28, superlative formulas and, 1.260–1.261 3.34–3.35 survey frame, 1.62–1.68 international guidelines on choosing a method for unit value indices and, 1.23, 1.27, 2.39, 2.54, 2.72, compiling, 2.2 2.74–2.80 international standards for, 3.19–3.35 valuation data source, 4.44, 4.50 introduction of new weights, 1.311 weights and, 5.28, 6.93 links between the new CPI, PPI, and the XMPI Manuals, European Foundation for Quality Management 3.32–3.33 Excellence Model macroeconomic aggregations, 3.59 description, 13.94 methods for compiling, 2.1 European Union mission of, 13.5 Harmonized Indices of Consumer Prices, 3.27 official price indices, 3.10–3.18 Eurostat. See Statistical Office of the European Communities overview of the steps for developing, 1.325–1.422 EUROSTAT Classification of Commodities by Activity 2008 pricing concepts used in, 3.38 Version purpose of, 3.2, 3.36–3.40 basis for, 4.65 responsibilities of the international agencies, 3.30–3.31 description, 1.53 seasonal agricultural commodities in the U.S. XMPI, development of, 4.65 11.41–11.44 Evolutionary new goods and services, 1.140, 9.23–9.24, stage of production analysis, 3.61 9.34–9.35, 9.39–9.40, 9.45, 22.82–22.84 technical expert groups, 3.34–3.35 Expenditure approach. See Production and expenditure unit values and, 3.17–3.18 approaches to exports and imports updating weights, 1.310 Explicit methods of quality adjustment uses of, 1.28–1.37, 1.318, 3.41–3.54 addition of a feature to a commodity and, 8.111–8.112 as weighted averages of elementary indices, Delphi method and, 8.102 10.100–10.110 description, 1.105, 8.58, 8.60, 8.100 Export price indices. See also Import price indices developing XMPIs and, 1.341–1.352 cost-of-living index and, 2.32

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cross-elasticities of supply and, 10.34 proportionality test proposal, 17.38 description, 1.2–1.3 reversal tests, 17.42, 17.56 economic approach to index number theory and, 18.22 symmetry tests and, 17.42 establishment survey frame, 1.62 test of determinateness as to prices, 17.127 explicit quality adjustment, 1.108 time reversal test and, 17.44, 18.4 inequalities, 18.36–18.40 Fisher price indices observable bounds and, 18.28–18.40 additivity test, 1.207, 17.70–17.73 optimizing behavior assumption and, 18.28 agricultural products and, 11.35 output export price indices, 10.33–10.39 as an approximation to an economic export output price reference quantities and, 18.33 index, 18.41–18.45 resident’s perspective, 8.33 as an average of the Paasche and Laspeyres indices, for a single establishment, 18.28–18.51 16.19–16.24, 18.52, 18.108 unit value indices and, 1.12 appropriate use of, 1.324 Extended Balance of Payments Services Classification axiomatic approach to index number theory and, 3.6, description, 4.66 17.38, 17.42, 17.44, 17.53–17.56, 21.20 supplementary items and alternative groupings, 4.67 Carli index and, 1.294, 21.32 treatment of specific products and issues and, 11.3 chained, 20.141–20.144, 23.30–23.34, 23.37, External trade. See also Strategies for Price and Quantity 23.41–23.44, 23.49, 23.51–23.54 Measurement in External Trade circularity test and, 16.93 created codes for resident’s view, 15.44 description, 1.18, 3.6 nonresident’s view of exports and imports, Diewert decomposition, 20.141–20.142, 20.145 15.41, 15.49 Drobisch index and, 20.133 resident’s view of exports and imports, economic approach and, 1.231, 18.41–18.45, 15.42–15.45, 15.48 21.20, 22.64 equations for, 1.177, 20.131 final demand price indices and, 20.182–20.194 F harmonic means and, 1.303 ideal price index, 17.53–17.56, 18.70–18.75, 18.81, Factor reversal test 20.131–20.135 description, 1.203 increases registered, 1.251 equation, 17.56 Lowe indices and, 1.168 Laspeyres and Paasche indices and, 1.204 national producer price indices and, 20.146–20.159 Field procedures for price collection product test and, 16.23 delinquency follow-up, 7.98–7.100 quantity index, 17.70–17.71 field officer visits, 7.95–7.96 quantity index for GDP, 20.48–20.50 industry specialists and, 7.97 ranking using the axiomatic approach, 1.199 price discounts, 7.65–7.78 rolling-year annual indices for seasonal products, price discrimination, 7.89–7.94 23.47–23.54 quality changes/specification changes, 7.79–7.80 superiority of, 1.237, 1.276, 17.61, 18.44, 18.92, 21.20 rebates, 7.67–7.78 superlative nature of, 1.231, 1.233, 1.249, 3.9, 8.175, sampling issues, 7.87–7.88 18.70–18.75, 18.81, 18.83, 18.86, 18.92 transfer prices, 7.86 as target index, 10.93 unique commodities, 7.81–7.84 terms of trade and, 24.32, 24.65, 24.89 unit values, 7.85 time reversal test and, 16.21, 20.31 Final demand price indices Törnqvist index and, 1.253, 16.94 domestic final demand price indices, 20.182–20.183 Törnqvist Theil price index and, 18.91 export price indices at final demand prices, two-stage aggregation and, 18.95–18.97, 20.137–20.138 20.184–20.185 value of r and, 1.236 GDP deflators, 20.188–20.189 Van Ijzeren decomposition, 20.143–20.145 import price indices at final demand prices, Walsh index and, 1.253 20.186–20.187 year-over-year annual indices for seasonal products, methodology, 20.39, 20.88–20.89, 20.115–20.145 23.36–23.44 Finland year-over-year monthly indices for seasonal products, import price and import unit value indices, 2.63–2.66 23.19–23.34 FIOXPI. See Fixed-input output export price index Young index and, 16.65 Fisher, Irving Fixed-basket or constant quantities test Fisher index development, 3.5–3.6 equation for, 17.34 The Making of Index Numbers, 3.5 Törnqvist price index and, 17.34

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Fixed-input output export price index Gradualist approach computer microprocessing units and, 8.49–8.51 export and import price indices and, 1.25, 1.326–1.327, 6.3 description, 8.34 potential problems with, 2.77 indirect revenue functions and, 8.38 unit value indices and, 2.75–2.77, 2.86, 6.3 problems with, 8.43–8.45 Gross domestic product. See also Production and pure price change and, 8.35–8.37 expenditure approaches to exports and imports Fixed-output input import price index deflators, 15.75–15.76, 15.80, 20.160–20.171, basis for, 8.40 20.188–20.194 indirect cost functions and, 8.41 final demand price indices and, 20.188–20.189 problems with, 8.43–8.45 national accounts and, 15.75–15.76, 15.80–15.81 Fleetwood, William national value-added price deflator, 20.169–20.171 early index example, 3.3 reconciliation of the GDP deflator with the value-added f.o.b. price. See Free on board price deflator, 20.190–20.194 FOIMPI. See Fixed-output input import price index two-stage value-added price deflators, 20.172–20.181 Free on board price value-added price deflators for the goods and services description, 1.42, 3.38, 11.153 industry, 20.160–20.162 price basis and, 11.153–11.156 value-added price deflators for the services industry, United Nations guidelines, 4.15, 4.18 20.163–20.165 valuation and, 4.48 value-added price deflators for the transportation valuation principle for imports and exports, 4.13 industry, 20.166–20.168 Fundamental Principles of Official Statistics, 14.3, 14.46 “Guidelines on Principles of a System of Price and Quantity Statistics” manuals based on, 3.19 G Garments. See Clothing industry H Gasoline. See Crude petroleum and gasoline Geary-Khamis volume index Harmonized Commodity Description and Coding System. additivity test, 1.205 See Harmonized System General Data Dissemination Standard, 14.47–14.48 Harmonized Indices of Consumer Prices General Industrial Classification of Economic Activities development of, 3.27 within the European Communities Harmonized System description, 21.15 background of, 4.58 recommendation for the use of, 4.56 Carli index and, 1.277 General Industrial Classification of Economic Activities chapter groupings, 4.60 within the European Communities, Revision 2 description, 1.53, 21.15 description, 1.55 elementary aggregate definition of goods, 6.28 Germany goods classification, 4.59 import price and import unit value indices, 2.63–2.66 grouping of individual commodities for elementary price index number changes compared with unit value aggregates, 10.10 changes, 2.43, 2.47, 2.48, 2.61–2.62 price dispersion of unit values within detailed groups, 2.60 survey pricing approach, 2.7 recommendation for the use of, 4.56 unit value methodology changes, 2.45 sampling issues in price collection and, 6.1, 6.2 Government agencies. See Governments and government treatment of specific products and issues and, 11.3 agencies unit value indices and, 2.20 Governments and government agencies Hedonic analysis. See also Hedonic indices; Hedonic customs data collection, 5.20–5.24 regressions; Quality change and hedonics data sources, 7.63 additive and multiplicative formulations and, 8.123 economic policy, 3.43–3.46 appropriate use of, 8.129, 8.149–8.150, 8.161 Ministry of Energy data source, 11.60 backcasting and, 8.172 Ministry of Finance or Treasury as data sources, 5.24 chained indices and, 8.163, 8.165, 8.188–8.190, 22.57 Ministry or Department of Tourism databases, 5.23 checklists for the characteristics of a commodity Ministry or Department of Transportation and, 8.116 databases, 5.21 choice of variables and, 8.143 motor vehicle industry and, 11.97 computers and, 1.130–1.131, 8.117–8.122, 8.192, price indexes as a public good, 3.10 11.75–11.80 responsibility for compiling price indices and, 3.11, 3.12 country product dummy method, 21.86 telecommunication and postal service data, 5.22 description, 1.129, 8.115

654

dummy variables, 8.28, 8.125, 8.163–8.166, 8.171, purposes of, 22.53 8.184, 8.190 revenue functions and, 22.36 functional forms, 22.91–22.94 superlative and exact forms, 8.175–8.182, 22.63–22.69 implementation of, 8.130–8.139 theoretical characteristics price indices, 22.54–22.55 indirect adjustment, 8.138–8.139 vertical characteristics and, 22.51 interpretation of coefficients from, 8.127 weighted least squares estimators and, 8.166, 8.171, investments over a long period and, 8.144 22.64, 22.75, 22.77, 22.80, 22.96–22.100 least squares model, 21.88–21.92 Hedonic regressions. See also Hedonic analysis; limitations of, 8.140–8.145, 8.161 Hedonic indices linear models, 8.123, 22.93–22.94 buyers’ tastes and, 22.31 log-log form, 22.93–22.94 changing tastes and technologies, 22.95 matched indices and, 8.183–8.185 consumer or demand side, 22.13–22.17, 22.30–22.31 matched-models method and, 8.160–8.185, 9.17, description, 22.8, 22.12 20.78–20.79 equilibrium between supply side and demand side, motor vehicle industry price changes, 11.95 22.22–22.23 period-on-period hedonic indices, 8.167–8.174 hedonic indices and, 22.9 predicted vs. actual imputation, 8.131–8.134 hedonic prices, 22.24–22.32 predicted vs. predicted imputation, 8.135–8.136 hedonic prices and implicit markets, 22.12–22.51 principles and method, 8.115–8.126 identification and appropriate estimators, 22.25, quality adjustment improvements in CPIs and, 8.145 22.86–22.90 repricing for commodities with different characteristics, items as bundles of characteristics, 22.12 8.130 marginal unit revenue and, 22.20 semi-logarithmic form, 8.123–8.126, 8.179, 22.93–22.94 multicollinearity, 22.102–22.103 superlative and exact hedonic indices, 8.175–8.182, offer functions and, 22.21 22.64–22.70 omitted variable bias, 22.104 theory of, 8.127–8.129 ordinary least squares assumptions and, 22.85–22.90, treatment of quality change and, 1.109, 1.129–1.131, 22.101 8.28, 8.115–8.145 overview, Appendix 8.1 updating coefficients and, 8.141 producer or supply side, 22.18–22.21, 22.30–22.31 usefulness of, 8.126 simultaneity problem, 22.26 user-friendly software with regression capabilities and, software for, 8.140, 22.10 8.140 uses for, 22.85 using coefficients, 8.137 value functions and, 22.16–22.17 using suitable samples of prices and characteristics, 8.142 views of economists, 22.27–22.32 Hedonic indices. See also Hedonic analysis; Hedonic weighting issues, 22.96–22.100 regressions HESs. See Household expenditure surveys as an alternative hedonic theoretical formulation, HICPs. See Harmonized Indices of Consumer Prices 22.33–22.49 Higher-level indices. See also specific indices data sources, 22.53 alternatives to fixed-weight indices, 10.165–10.171 decomposing price changes into matched and unmatched calculation of, 10.93–10.171, 10.110 components, 22.73–22.80 chain linking, 10.133–10.160 difference between the period-on-period and time dummy decomposition of index changes, 10.161–10.164 approaches, 22.71–22.72 description, 10.101 dummy variables, 8.28, 8.125, 8.163–8.166, 8.171, 8.184, factoring the Young index, 10.129–10.130 8.190, 22.56–22.58, 22.71–22.72, 22.95, 22.99 frequency of reweighting, 10.136–10.138 Fisher-type, 22.46–22.48 introduction of new, higher-level indices, 10.148–10.149 hedonic model price functions and, 22.34 introduction of new elementary aggregates, 10.145–10.147 hedonic regressions and, 22.9 introduction of new weights, 10.133–10.160 horizontal characteristics and, 22.51 long- and short-term links, 10.157–10.160 industries with rapid turnover of items and, 22.9 partial reweighting and introducing new goods, Laspeyres-type, 22.40–22.41, 22.44–22.45, 22.49 10.150–10.156 markups and imperfect competition, 22.50–22.52 price updating of trade value weights, 10.111–10.128 matched-models method and, 8.160–8.185, 9.17, 20.78– re-referencing, 10.131–10.132 20.79 reference periods, 10.107–10.109, 10.131–10.132 need for, 22.53 target indices, 10.93–10.99 Paasche-type, 22.42–22.45, 22.49 XMPIs as weighted averages of elementary indices, “patching” and, 22.53 10.100–10.110 period-on-period, 22.59–22.63, 22.71–22.72 Young index, 10.117–10.118, 10.126, 10.129–10.130

655

Hill, Peter annual basket indices with imputation of unavailable chain indices, 16.85 prices, 23.85–23.86 superlative indices, 16.33 bias of the arithmetic mean of price changes of Hill, Robert commodities and, 8.86–8.87, 8.92, 8.152 method of analysis, 18.90–18.91 Carli index and, 8.80, 8.83 Hotelling’s Lemma class mean imputation, 8.95–8.96, 8.151 description, 18.64 description, 8.78 Diewert Morrison index and, 24.46, 24.75, 24.95 Dutot index and, 8.80 equations, 18.64, 18.66, 18.73 expected difference between r1 and r2 and, 8.93 Household expenditure surveys Jevons index and, 8.78–8.79, 8.84 description, 1.72 market conditions and, 8.91 HS. See Harmonized System matched-models method and, 8.10 Hybrid indices missing price changes, 10.208–10.211, 23.85–23.86 advantage of, 1.21, 2.50 missing prices and, 23.85–23.86 developing XMPIs and, 1.327 overall mean/targeted mean imputation, progressive approach to adopting, 1.22–1.23 8.78–8.94, 8.151 reliability of unit value subindices, 2.59–2.66 price skimming and, 8.92 unit value indices and, 1.21–1.25, 2.49–2.66, 2.84, pricing, commodity quality, promotion, and place 6.2, 10.90 and, 8.92 worked example, 2.51–2.53 pro forma setting for calculations, 8.94 proportion of replacements and, 8.93 quality-adjusted price changes, 8.86, 8.89–8.90 I seasonal goods and services and, 1.135 short-run compared with long-run, 8.88, 8.94 ICC. See International Chamber of Commerce short-run form, 8.199–8.204, 8.207 Identity or constant price test targeting the imputation or estimation and, 1.120 description, 1.189, 10.23 temporarily missing prices and, 10.51, 10.55 equations for, 17.34, 17.98, 17.132, 21.41 unadjusted price and, 8.87 unit value indices and, 2.22 unit value indices and, 2.57–2.58 ILO. See International Labor Organization Income tax issues. See Production and expenditure ILO Manual on Consumer Price Indices approaches to exports and imports; Transfer prices revision of, 3.23, 3.25, 3.28 Inflation Implicit methods of quality adjustment CPI versus PPI as a measure of inflation in market description, 1.105, 8.58, 8.60 transactions, 15.67–15.69 developing XMPIs and, 1.341–1.352 export and import price indices and, 3.24, nonoverlapping qualities, 1.115–1.125 3.27, 3.41 overlap method, 1.110–1.114, 1.139, 8.65–8.77, 8.153, price collection and high or hyperinflation, 10.65–10.66 7.26–7.28 Import price indices. See also Export price indices Initiation process conditional import cost function, 18.101 description, 13.35 cost-of-living index and, 18.99–18.115 Input import price indices description, 1.2–1.3 basis for, 1.249 economic approach to index number theory and, 18.22, behavior assumption behind, 1.248 18.99–18.127 description, 1.247 economic import price index for a household, Inter-Secretariat Working Group on Price Statistics 18.116–18.127 need for a new PPI manual and, 3.28 economic import price index for an establishment, staff of, 3.34 18.99–18.115 Interagency Task Force on Trade Statistics establishment survey frame, 1.62 XMPI Manual revision and, 3.35 explicit quality adjustment, 1.108 Internal Revenue Service household import price indices, 18.121–18.127 transfer prices and, 19.5 inequalities, 18.105 International Chamber of Commerce input import price indices, 10.40–10.41 price basis definition, 11.152–11.155 joint cost function and, 18.99 International commodity price indices unit value indices and, 1.12 description, 1.23 Imputation method of quality adjustment International Labor Organization agricultural products and, 11.22–11.23 hedonic regressions and, 22.26

656

standards development and, 3.21 unequivocal quantity index and, 17.65–17.68 International Merchandise Trade Statistics: Concepts and Invariance to proportional changes in current quantities test Definitions, 5.7 equation, 17.40 International Monetary Fund Inverse proportionality in base-period prices test General Data Dissemination System, 14.47–14.48 equation, 17.39, 17.100, 21.41 Special Data Dissemination Standard, 14.47 Irrelevance of price change with tiny value weights test standards development and, 3.21 equation, 17.117–17.118 XMPI responsibilities, 3.31 IRS. See Internal Revenue Service International Standard Industrial Classification of All ISIC. See International Standard Industrial Classification of Economic Activities All Economic Activities categories of, 4.63–4.64 ISO 9000 Central Product Classification and, 4.63 description, 13.95 description, 1.53, 1.55 ITRS. See International Transactions Reporting System grouping of individual commodities for elementary aggregates, 10.10 output criterion and, 4.64 J recommendation for the use of, 4.56 International standards for price indices. See also Japan specific standards expression of XMPIs in foreign currency, 11.141 collection of internationally comparable data and, 3.21 price index number changes compared with unit value need for, 3.19–3.20 changes, 2.43, 2.47, 2.48 as norms or standards for a country’s own unit value methodology changes, 2.45 statistics, 3.22 Jevons index International Standards Organization advantages of, 1.276, 10.28 ISO 9000, 13.95 artificial data sets and, 20.121–20.124 International Transactions Reporting System axiomatic approach and, 21.50 commercial banks and, 5.19 calculation of, 1.300 coverage, 1.60, 5.19 calculation of elementary price indices, 10.14–10.20 customs data and, 1.60–1.61 Carli index and, 21.38 establishment survey documents, 1.63 Carruthers, Sellwood, and Ward indices and, 21.39 principle of, 5.19 chained and direct versions, 10.44 uses for, 5.19 consistency in aggregation, 10.49 Internet cross-elasticities of supply and, 10.36, 10.40 company websites, 7.60–7.61 cross-item elasticities of substitution between different data provision and, 7.54–7.55 items and, 1.293 e-mail collection of data, 7.58 description, 1.211, 10.14 electronic release of data, 14.63–14.66 Dutot index and, 1.272, 21.37 Invariance to changes in the ordering of commodities test. equations for, 21.26, 21.36 See Commodity reversal test harmonic means and, 1.303 Invariance to changes in the units of measurement test hedonic analysis and, 8.183, 21.87–21.92 Carli index and, 10.23 imputation method, 8.78–8.79, 8.84 description, 1.189, 10.23, 21.47 inequalities, 21.34–21.35 Dutot index and, 1.190, 1.276, 10.23 invariance to changes in the units of measurement test equations for, 17.43, 17.107–17.108, 17.132, 21.46 and, 10.23 Jevons index and, 10.23 missing prices and, 10.68–10.69 unit value indices and, 2.25, 2.27 sampling approach, 21.83 Invariance to proportional changes in base period values test sensitivity of, 1.278 equation, 17.101–17.102 stochastic approach to index number theory and, 1.211, Invariance to proportional changes in base quantities test 17.74–17.76 equation, 17.40 temporarily missing prices and, 10.57 Invariance to proportional changes in current period time reversal test and, 10.23, 21.32 values test Törnqvist price index and, 21.59–21.61 equation, 17.101–17.102 trade value shares, 10.41 Invariance to proportional changes in current prices test transitivity of, 10.19, 10.43 additivity test and, 1.206 transitivity test and, 10.23 description, 17.66 value share changes and, 1.290–1.291 pure price indices and, 16.31 weights and, 16.91–16.92

657

K Lowe index and, 10.114–10.115, 16.39–16.49, 16.51, 16.103–16.306 Keynes, John Maynard national producer price indices and, 20.146–20.159 criticism of the unweighted stochastic approach to observable type, 24.26–24.27, 24.60, 24.85, number theory, 17.76–17.77 24.114–24.115 Kohli, Ulrich Paasche indices and, 16.99–16.102 effects of changes in the real price of exports, 24.20–24.57 partial cost-of-living index, 24.111–24.115, 24.120 Konüs, Alexander period 0 and, 1.152, 1.225 economic theory of the cost-of-living index, 3.7 practical advantage of, 1.155 Konüs Laspeyres partial cost-of-living index price relatives and, 1.152 effects of changes in the price of imports, quantity index for GDP, 20.45–20.47, 20.52 24.111–24.115, 24.119 ratio of the basket of producer goods and services traded Konüs Paasche partial cost-of-living index in period 0 and, 1.152 effects of changes in the price of imports, 24.116–24.119 ratios of Lowe and Laspeyres indices, 1.158–1.160 resident’s perspective, 1.216, 1.217 rolling-year annual indices for seasonal products, L 23.47–23.54 sampling issues in price collection and, 6.118 Laspeyres indices. See also Paasche and Laspeyres seasonal adjustments, 23.83, 23.91–23.93, 23.95 bounding test substitution bias and, 1.218–1.219, 1.225, 1.323, 18.3, appropriate use of, 1.219 18.10, 18.39 artificial data sets and, 20.121–20.126 substitution effect and, 1.164–1.165, 18.4, 18.42 axiomatic approach to index number theory and, symmetric indices and, 1.176, 16.19–16.24, 18.6, 18.44 17.57–17.58, 17.61 as target indices, 10.95 bias of, 8.46–8.47, 12.22, 18.1–18.2, 18.5, 23.41, 23.51 terms of trade and, 24.8, 24.24–24.27, 24.38, bounding test, 1.189, 1.324 24.59–24.61, 24.65, 24.66, 24.83–24.85, calculation of, 1.307–1.308 24.89–24.90, 24.99 Carli index and, 1.294, 10.32 theoretical indices and, 1.225–1.227 chained, 1.180–1.186, 23.30–23.34, 23.37, 23.41–23.44, time reversal test, 1.193–1.194, 1.196–1.197, 1.228, 23.49, 23.51–23.54, 23.70–23.77 16.20, 17.44, 17.61, 17.87, 21.45 consistency in aggregation, 1.244, 10.49 time series of monthly, 1.155 cross-elasticities of supply and, 10.34 two-stage aggregation and, 18.93–18.94 cross-item elasticities of substitution between different upward bias of, 1.164, 16.49, 16.53 items and, 1.292 value-added price deflators, 20.160–20.187 decomposing current value changes using, 1.156–1.157 weighted arithmetic average of the radios of the description, 1.150, 16.33 individual prices in periods t and 0 and, 1.152 determinateness as to prices test and, 17.127 weighted stochastic approach to index numbers Divisia index and, 16.76 and, 2.213 Dutot index and, 21.68, 21.71–21.72 year-over-year annual indices for seasonal products, economic approach and, 21.58 23.36–23.44 equations for, 1.151 year-over-year monthly indices for seasonal products, expression of, 1.152 23.19–23.34 factor reversal test, 1.204 Young index and, 1.153, 1.171, 16.56, final demand price indices and, 20.182–20.194 16.58–16.59, 16.61 Fisher price index and, 16.19–16.24 Levels test approach to index number theory. See Axiomatic fixed-base type, 16.82–16.83 approach to index number theory geometric version, 1.172–1.175 List prices harmonic form, 17.88 description, 7.23 hedonic-type, 22.40–22.41, 22.44–22.45, 22.49 discounts or rebates and, 7.24 imputation method for filling in missing prices and, transaction prices and, 7.25 23.85–23.86 Lloyd-Moulton index increases registered, 1.251 advantage of, 1.246 inequalities, 18.36–18.40, 18.105 equation for, 1.245 input import prices and, 1.248, 1.249 London Metal Exchange interrelationships between fixed-basket indices, pricing of metals, 11.66 1.163–1.168 Lowe, Joseph Leontief aggregator functions and, 8.175, 12.9, 12.11, approach to measuring price changes, 16.12 21.64, 22.64 index example, 3.4

658

Lowe indices hedonic analysis and, 8.160–8.185, 8.183–8.185, 9.17, additivity test, 1.205 22.79–22.80 base period concept, 1.149 imputation and, 8.10 basket of quantities for, 1.147–1.148 intersection universe and, 9.5, 9.58 calculation of, 1.307–1.308 measurement of price changes of commodities unaffected chained, 1.161–1.162, 1.180–1.186 by quality changes, 8.155–8.156 description, 1.146, 10.94, 10.113, 16.25, 16.34 missing commodities and, 8.10–8.11 equations for, 1.148, 1.166, 23.78 new goods and services and, 8.9, 8.16–8.21, 9.1, 22.1 expression of, 1.149 overlap period and, 8.10 Fisher index and, 1.167 reasons for failure of, 8.9–8.21, 9.1 formulas for evaluating, 16.39–16.41 replacement commodities and, 8.10 harmonic mean and, 16.38 replacement universe and, 9.5, 9.13 hybrid weights and, 1.149, 1.162, 16.40–16.41 repricing and, 9.9 imputation method for filling in missing prices and, sample degradation and, 8.160 23.85–23.86 sample rotation and, 9.9, 9.11–9.14, 9.30–9.33 Laspeyres indices and, 1.166, 10.114–10.115, sample space and commodity replacement or substitution, 16.39–16.49, 16.51, 16.103–16.106 8.9, 9.7–9.10, 9.45 long-term trends in prices and, 16.54 sampling bias, 8.157 meaning of, 10.94 sampling issues, 1.86, 1.91, 1.137, 8.12–8.15, midyear indices and, 16.50–16.54 9.3–9.17 with monthly prices and annual base-year quantities, treatment of quality change and, 8.9–8.21, 8.28 16.34–16.49 Mean value test for prices Paasche indices and, 1.166, 16.47, 16.52 description, 1.189 positioning of period b, 1.167 equations for, 17.47, 17.112, 17.132, 21.41 production and maintenance of, 1.309–1.312 Mean value test for quantities ranking using the axiomatic approach, 1.201 equations for, 17.48 ratio of two value aggregates calculation, 1.149 Metals ratios of Lowe and Laspeyres indices, 1.158–1.160 cost of insurance and, 11.67 reference periods, 23.78 difficulty of measuring price changes, 1.48 Rothwell index and, 23.89 pricing issues important in international trade, sampling issues in price collection and, 11.66–11.67 6.118–6.119 transaction price, 11.67 seasonal adjustments, 23.83, 23.91–23.93 Methods of quality adjustment as target indices, 10.94 additive compared with multiplicative, 8.61, 8.123 test properties, 17.130–17.134 base- compared with current-period adjustment, 8.62 time reversal test, 1.195–1.197, 1.201 carry forward, 8.99, 10.51, 10.54 time series of monthly, 1.155 comparable replacement, 8.58, 8.97, 8.148, 8.194 transitive nature of, 1.158 explicit, 8.58, 8.60, 8.100–8.145 upward bias of, 16.36 implicit, 8.58, 8.60 Walsh price index and, 1.240–1.242 imputation, 8.58, 8.78–8.94, 8.151–8.152, 8.199–8.204, Young index and, 1.170, 10.118, 10.122–10.126 10.51, 10.55, 10.208–10.211 linking to show no price change, 8.98, 8.154 long-run compared with short-run comparisons, 8.63, M 8.67, 8.88, 8.94, 8.193–8.207 method selection, 8.146–8.154 The Making of Index Numbers (Fisher), 3.5 overlap, 8.58, 8.153, 8.197 “Manual on Producers’ Price Indices for Industrial Goods” statistical metadata, 8.64 guidelines for industrial PPIs, 3.19 Mirror price indices Manual on Producers’ Price Indices for Industrial Goods description, 1.23, 2.55, 2.87, 7.1 revision of, 3.23, 3.25 Missing prices and adjusting prices for quality change. Matched-models method See Treatment of quality change advantages of, 9.45 Monotonicity in base prices test areas of concern, 8.12–8.15 equation, 17.50, 17.113, 21.41 chained formulations and, 9.15–9.16 Törnqvist price index and, 17.34 dynamic double universe and, 9.5, 9.46, 9.47, 9.55–9.56, Monotonicity in base quantities test 9.59, 12.34–12.36 equation, 17.50 examples, 8.158–8.160 Törnqvist price index and, 17.34 explicit adjustment for quality differences and, 8.10 Walsh price index and, 17.59

659

Monotonicity in current prices test drawbacks to, 1.74 description, 1.189 external trade, 15.41–15.45 equations, 17.50, 17.113, 21.41 GDP deflators, 15.75–15.76, 15.80 Törnqvist price index and, 17.34 informal and illegal activities and, 1.73 Monotonicity in current quantities test institutional units and establishments, 15.13–15.15 equation, 17.50 labor services price indices, 15.77 Törnqvist price index and, 17.34 local kind of activity units, 15.14, 15.22 Walsh price index and, 17.59 major goods and services price statistics and national Month-to-month indices accounts, 15.6–15.78 agriculture industry and, 11.42–11.43 nonmarket outputs, 15.22 chained, 10.15 price indices for final uses, 15.74, 15.80 elementary price indices, 10.15 price indices for total supply, 15.71–15.73 forecasting rolling-year annual indices using month-to- producer price indices, 15.57–15.69 month annual basket indices, 23.91–23.97 production accounts, 15.21–15.27 poor performance of, 23.76 recording transactions in goods and services, 15.17–15.20 seasonal goods and services and, 23.63–23.77 relationship between the resident’s and the nonresident’s usefulness of, 23.75 view of exports, 15.50 Motor vehicle industry relationship between the resident’s and the nonresident’s class mean imputation method of quality adjustment view of imports, 15.51 and, 8.96 supply and use tables, 15.10–15.12, 15.46–15.53 commodity areas, 11.85 system of price statistics framework, 15.6–15.56 data from private companies, 11.96 timing of transactions covered, 15.18 difficulty of measuring price changes, 1.48 two variants of export and import indices in the national explicit methods of quality adjustment and, 8.108, 8.111 accounts and their relationship to other price government-mandated changes, 11.97 indices, 15.70 hedonic analysis, 11.95 two variants of export and import price indices in the legally mandated features, 11.97 national accounts and their relationship to other price market values, 11.89 indices, 15.70 match pricing on a particular day of the month, 11.90 users’ special interest in price/volume decompositions new model of motor vehicle prices example, 1.386, and, 1.75 8.27–8.28 valuation principles, 15.19 options and, 11.98 The Netherlands overlap method and, 11.93 import price and import unit value indices, 2.63–2.66 pricing issues important in international trade, New commodities. See New goods and services 11.84–11.98 New goods and services. See also Consumption of goods quality change and, 11.91–11.98 and services; Coverage of goods and services; respondent selection, 11.88 Seasonal goods and services understanding the industry, 11.86 adding and deleting, 9.53–9.54 valuing the difference in production cost attributable to appearance and disappearance of goods and the change in characteristics, 11.94 establishments, 9.46–9.61 MPIs. See Import price indices chained indices and, 9.15–9.16, 9.45 Multinationals. See Transfer prices concerns with, 9.25–9.28 dynamic double universe and, 9.5, 9.46, 9.47, 9.55–9.56, 9.59, 22.2 N economic issues, 22.85–22.104 elasticity of substitution and, 9.44, 9.62–9.67 NACE Rev. 2. See General Industrial Classification of errors and bias and, 12.44 Economic Activities within the European establishment surveys and, 9.1 Communities, Revision 2 evolutionary, 1.140, 9.23–9.24, 9.34–9.35, 9.39–9.40, NAICS, 2007. See North American Industrial Classification 9.45, 22.82–22.83 System, 2007 higher-level indices and introduction of, 10.150–10.156 National accounts incorporation of into the index, 9.20–9.44, 9.45, administrative data on trade in goods and services 22.81–22.84 and, 1.76 information requirements for quality adjustment, capital formation, 15.39–15.40 9.18–9.19 constructing the system of supply and use flows from initially high price at introduction, 8.19–8.20 accounting data on institutional units, 15.16–15.56 intersection universe, 9.5, 9.58, 22.2 consumption of goods and services, 15.28–15.38 market imperfections and, 8.18

660

matched-models method and, 8.9, 8.16–8.21, 9.1, OECD. See Organization for Economic Cooperation and 9.3–9.17, 9.47–9.49, 22.1 Development “most sold” and “most like” replacements, 9.51 Organization and management “new goods” definition, 22.81 checking and editing of price data, 1.316 operational target, 9.55–9.56 description of procedures, 1.314 quality changes and, 9.20–9.24 documentation process, 13.81–13.89 quality descriptions of, 8.5 estimation process, 13.72–13.75 replacement universe, 9.34–9.36, 9.45, 9.50–9.52, evolving sets of commodities and, 1.315 9.60–9.61, 22.3–22.4 initiation process, 13.35–13.45 resampling and, 1.98, 8.20–8.21, 9.47–9.49 managing the process, 13.11–13.12 revolutionary, 1.140, 9.23–9.24, 9.36–9.37, 9.39, 9.45, organizational structure and resource management, 22.82–22.84 13.8–13.32 sample augmentation, 9.37–9.41, 22.84 overview, 13.2–13.7 sample rebasing and, 9.28, 9.30–9.33 process improvement, 13.25–13.29 sample rotation and, 9.30–9.33, 9.45, 9.49 processing components, 13.30–13.32 sampling issues and matching, 9.3–9.17 publication process, 13.76–13.80 splicing the new commodity onto an existing or obsolete quality control, 13.64–13.71, 13.90–13.96 one, 9.38–9.39 repricing process, 13.46–13.71 statistical metadata system for, 9.18–9.19, 9.45 sampling process, 13.33–13.34 time of introduction of a good, and time of loss of a selecting the right transactions for pricing on initiation of good, 9.42–9.44, 9.45 the sample, 1.315 timing of the introduction of, 1.141 staffing, 13.13–13.24 two-level aggregation system, 9.57 structuring, 13.8–13.10 welfare gain and, 9.20 using improvements in information technology, 1.317 Nonoverlapping qualities of adjustment Organization for Economic Cooperation and doing nothing and, 1.118 Development elementary indices and, 1.119 hedonic regressions and, 22.26 formulas for, 1.115–1.117 standards development and, 3.21 options for, 1.115–1.118 Transfer Pricing Guidelines, 11.145, 11.150, overall mean method, 1.121 19.75–19.77, 19.97 seasonal goods and services and, 1.124 XMPI responsibilities, 3.31 short-run comparisons compared with long-run Organizational structure and resource management comparisons, 1.123 computer use and, 13.31–13.32 targeted or class mean method, 1.121–1.122 managing the process, 13.11–13.12 targeting the imputation or estimation and, 1.120 process improvement, 13.25–13.29 Nonprobability sampling processing components, 13.30–13.32 description, 6.43 reviewing and revising goals, 13.27 Nonresident’s perspective staff input, 13.28 behavioral assumptions for (table), 18.1 staffing issues, 13.11–13.24 description, 18.7 structuring, 13.8–13.10 economic theory and, 18.5–18.13 Ottawa Group international trade flows, 1.43, 4.4, 4.17 CPI Manual and PPI Manual revisions and, 3.35 uses of XMPIs and, 1.31–1.32, 1.39 international standards revision and, 3.23 North American Industrial Classification System Output editing recommendation for the use of, 4.56 index calculations and, 1.389 North American Industrial Classification System, 2007 sampling issues in price collection and, 1.375 description, 1.55 Output export price indices Norway assumption of optimizing behavior on the part of unit value approach, 2.7 producers, 1.223 estimating theoretical export output indices by superlative indices, 1.228–1.246 O Fisher price indices as an approximation to, 18.41–18.45 Ocean liner freight “pure” price index number formulas and, 1.224 inbound, 11.118 superlative, 18.52–18.98 price-determining characteristics, 11.120 theoretical, 1.223–1.227 revenue weights, 11.121 upper and lower bounds on a theoretical output export sampling frame, 11.119 price index, 1.225–1.227

661

Outsourcing of data collection Laspeyres indices and, 16.99–16.102 advantages of keeping data collection in-house, 13.19 Leontief aggregator functions and, 8.175, 21.64, 22.64 decision to use, 13.18 Lowe index and, 16.47, 16.52 lowering of costs and, 13.20 national producer price indices and, 20.146–20.159 mixed mode of operation, 13.21 observable type, 24.30–24.31, 24.63–24.64, 24.87–24.88, Overlap method of quality adjustment 24.117–24.118 commodities that have permanently disappeared and their partial cost-of-living index, 24.116–24.119, 24.120 replacements, 10.65–10.66 quantity index for GDP, 20.45–20.47, 20.52 description, 1.110–1.111, 8.58, 8.153 ratio of two value aggregates and, 1.154 examples, 8.65–8.68 rolling-year annual indices for seasonal products, law of one price basis for, 8.76–8.77 23.47–23.54 motor vehicle industry and, 11.93 substitution bias and, 1.218–1.219, 1.323, 18.3, 18.39 relative prices and, 8.72–8.74 substitution effect and, 1.164–1.165, 18.4, 18.42 sample rotation and, 1.139, 8.75 symmetric indices and, 1.176, 16.19–16.24, 18.6, 18.44 short-run comparisons and, 8.67 terms of trade and, 24.28–24.32, 24.62–24.65, 24.66, short-run form, 8.197–8.198 24.86–24.90, 24.99 succession of periods of overlap, 1.112–1.113 theoretical indices and, 1.227 timing issues, 8.71 time reversal test, 1.193–1.194, 1.196–1.197, 1.228, validity of underlying assumptions and, 8.69–8.73 16.20, 17.44, 17.61, 17.87 Own share price weighting test time series of monthly, 1.155 equation, 17.115–17.116 value-added price deflators, 20.160–20.187 weighted stochastic approach to index numbers and, 2.213 P year-over-year annual indices for seasonal products, 23.36–23.44 Paasche and Laspeyres bounding test year-over-year monthly indices for seasonal products, description, 1.189, 1.324, 16.33 23.19–23.34 equations, 17.49, 17.123 Palgrave index Törnqvist price index and, 17.34 description, 17.86 Walsh price index and, 17.59 equation for, 20.125 Paasche indices Period prices appropriate use of, 1.219 advantages of, 7.9 artificial data sets and, 20.121–20.125 description, 7.8 axiomatic approach to index number theory and, homogeneous commodities and, 7.11–7.12 17.57–17.58, 17.61 narrowly defined commodities and, 7.14 bias of, 8.46–8.47, 18.1–18.2, 18.5, 23.41, 23.51 point-in-time prices and, 7.16 calculation of, 1.307–1.308 transportation costs and, 7.15 as a chain index, 1.180–1.186 unit value prices and, 7.10–7.14 chained, 23.30–23.34, 23.37, 23.41–23.44, 23.49, Personal interviews 23.51–23.54, 23.70–23.77 advantage of, 7.50 decomposing current value changes using, 1.156–1.157 combining with another collection method, 7.52 determinateness as to prices test and, 17.127 disadvantage of, 7.51 Divisia index and, 16.75–16.76 PLANISTAT Europe Dutot index and, 21.69–21.71 unit value and price index discrepancies, 2.63 economic approach and, 21.58 Point-in-time prices equation for, 1.154 advantages and disadvantages of, 7.7 expression of, 1.154 description, 7.6 factor reversal test, 1.204 period prices and, 7.16 final demand price indices and, 20.182–20.194 Population coverage Fisher price index and, 16.19–16.24 classifying XMPIs by commodity, by destination or fixed-base type, 16.82, 16.84 source country, and by the industry of the trading geometric version, 1.172–1.175 establishment, 1.41 harmonic average and, 1.154 description, 1.40 hedonic-type, 22.42–22.45, 22.49 Positivity test increases registered, 1.251 description, 1.189 inequalities, 18.36–18.40, 18.105 equations for, 17.34, 17.98, 17.132 input import prices and, 1.248, 1.249 Postal surveys interrelationships between fixed-basket indices, 1.163–1.168 advantages of, 7.46

662

changes to administrative information, 7.45 reducing respondent workload, 7.104 descriptions and explanations included, 7.44 respondent relations, 7.101–7.105 disadvantages of, 7.47 sampling issues, 7.87–7.90 key points of good practice, 7.43 seasonal commodities, 7.113 PPI. See Producer Price Index Manual; Producer price self-completion—return of data by postal survey, indices 7.43–7.47 PPS sampling. See Probability proportionate to size survey collection techniques, 7.35–7.63 sampling surveys of respondents’ views, 7.105 Press releases telephone interviews, 7.53, 13.35 charts and, 14.43 timing and frequency issues, 7.4–7.28 format for, 14.42 transaction descriptions, 13.40–13.41 methodology explanations, 14.45, 14.74–14.77 transfer prices, 1.98–1.101, 1.336, 7.86 model press release, bulletin, and methodological unique commodities, 7.81–7.84 statement, 14.39–14.45 unit value indices and, 7.85 Price basis validation of data, 7.27 duties and, 11.158 verification of prices, 7.106–7.111 international trade and, 11.152–11.158 Price coverage and valuation overlap method of quality adjustment and, 8.76–8.77 basic price, 1.42, 15.19–15.20 Price bouncing test change of ownership and, 1.44 equation, 21.42–21.43 purchasers’ price, 1.42, 6.13, 15.19 Price collection. See also Sampling issues in price collection resident’s and nonresident’s approach to international auditing of information, 13.44–13.45 trade flows, 1.43 automated telephone data submission, 7.48–7.49 treatment of transport margins, 1.45 changes in commodity specifications, 7.20, 7.79–7.80 Price discrimination collection methods, 7.42–7.63 competitive pressures and, 7.93 collection procedures, 7.35–7.100 description, 7.89 commodity specifications, 7.20, 7.29–7.34 differences in selling terms and provision of credit, 7.91 continuity principle, 13.42 differences owing to timing of contracts, 7.92 data from government regulators, 7.63 hidden quality differences, 7.94 data from published sources, 7.59–7.62 quality-adjusted price changes and, 8.92 dealing with refusals, 7.102–7.103 unit values and, 7.90 delinquency follow-up, 7.98–7.100 Price dispersion test discounts, 7.65–7.78 accuracy issues, 6.20–6.21 e-mail collection, 7.58 additional information on the price-determining electronic capture of data from discs, 7.56 characteristics of the transaction and, 6.23–6.24 electronic data transfer, 7.57 elementary aggregates and, 6.19–6.24 feedback from data collectors, 13.43 outliers or clustering, 6.22 field officer visits, 7.95–7.96, 13.48 testing suite example, 6.22 field procedures, 7.64–7.100 Price indices. See also System of price statistics; frequency, 7.17–7.18, 7.27 specific indices high or hyperinflation and, 7.26–7.28 agricultural products, 11.24–11.25 importance to the XMPI compilation process, 7.3 compared with unit value indices, 2.1, 2.13, industries where prices are generally stable, 7.18 2.43, 2.74 industry specialists, 7.97 compilation as weighted averages of changes in the initialization process, 7.30 prices of goods and services, 4.1 initiation process, 13.35–13.45 description, 1.0, 16.7, 16.9 Internet data provision, 7.54–7.55 primary use of, 16.10 lagged prices and, 7.112 Price observations period prices, 7.8–7.15 changes in commodity specifications, 7.20, 7.79–7.80 personal interviews, 7.50–7.52 currency of the returned price and, 7.21 point-in-time prices, 7.6–7.7 definition, 7.19 price discrimination, 7.89–7.94 list prices, 7.22–7.25 price observation definition, 7.19–7.25 Price reciprocal test price surveys of resident establishments for the PPI, 7.2 equations, 17.125–17.126 quality changes/specification changes, 7.79–7.80 Price reversal test quality issues, 13.39 equation, 17.46 questionnaire design, 7.36–7.41 Törnqvist price index and, 17.34 rebates, 7.67–7.78 Walsh price index and, 17.59

663

Pricing issues in international trade relationship to other major price indices, 15.65–15.66 country of origin or destination, 11.130–11.136 sampling issues in price collection and, 6.37 currency conversion, 11.140–11.143 simultaneous release of XMPIs and PPIs, 13.79 duties, 11.137–11.139 stage of processing PPIs, 15.61–15.64 intra-company transfer prices, 11.144–11.151 unit value indices and, 1.23, 2.56 price basis, 11.152–11.158 updating weights, 1.312 Probability proportionate to size sampling variants of, 15.57–15.64 advantages of, 6.45–6.46, 6.50 Product reversal test compared with cutoff sampling, 6.60 Carli index and, 1.277 costs of installing and administering, 6.53 Product test description, 6.42 equation, 17.95 disadvantages of, 6.49, 6.55–6.56 Fisher price index and, 16.23 inappropriate use of, 6.55 implicit quantity index and, 17.95 random sampling and, 6.47 unit value indices and, 2.28 sampling interval, 6.102 Production accounts sampling issues in price collection and, 6.37, 6.42–6.56, associated product groupings, 15.26 6.99–6.105 industry detail in, 15.25 two-stage sampling, 6.81 output aggregate for the PPI in, 15.27 uses of, 6.47 production detail in, 15.24 variances and, 6.81–6.84 Production and expenditure approaches to exports and PRODCOM 2007. See EUROSTAT Classification of imports Commodities by Activity 2008 Version artificial data set, 20.79–20.114 PRODCOM classification of industrial products constructing volume measures for GDP in the domestic recommendation for the use of, 4.56 production sector, 20.41–20.52, 20.74–20.78 Producer Price Index Manual domestic gross output by industry and commodity matrix, economic approach to index number theory and, 18.14 20.23–20.24, 20.55 establishment export price index and, 18.49 domestic intermediate input by industry and commodity establishment surveys, 1.79 matrix, 20.25 gross output price index and, 18.49 expanded input output accounts with no commodity XMPI Manual and, 3.32–3.33 taxation, 20.20–20.52 Producer price indices expanded production accounts for the treatment of background of, 3.14–3.16 international trade flows, 20.17–20.78 choice of method for dealing with missing commodities expenditure approach description, 20.7 and, 8.6 export by industry and commodity matrix, 20.26–20.27, compared with export and import price indices, 1.33, 20.56 6.2, 8.52 final demand method, 20.39, 20.88–20.89, 20.115–20.145, coverage of, 5.34 20.182–20.194 CPI versus PPI as a measure of inflation in market import use matrix, 20.28–20.29, 20.58–20.59 transactions, 15.67–15.69 input output accounts with commodity taxation and description, 1.23, 1.28, 3.14, 5.34, 15.2 subsidization, 20.53–20.78 frequency of compilation, 3.15, 3.16 national producer price indices, 20.146–20.159 importance of missing prices, 8.8 net supply matrix, 20.62–20.64 industry-based stage of processing indices, 15.62 nonresident point of view, 20.39 for intermediate consumption, 15.57 overview, 20.2–20.16 national, 20.146–20.159 producer price indices, 20.40, 20.65–20.67, national domestic intermediate input price index at 20.74–20.75, 20.89 producer prices, 20.153–20.155 production approach description, 20.6 national export price index at producer prices, resident point of view, 20.39 20.151–20.152 supply and use matrices, 20.31–20.38, 20.60 national gross domestic output price index at producer value-added method, 20.39, 20.68–20.73 prices, 20.146–20.150 value-added price deflators, 20.160–20.181 national import price index at producer prices, volume matrices, 20.30 20.156–20.159 Proportionality in current prices test net output PPIs and value-added deflators, 15.58–15.60 description, 1.189, 10.23 output price index, 2.32 equation, 17.37, 17.99, 21.41 price surveys of resident establishments for, 7.2 unit value indices and, 2.21 product-based stage of processing indices, 15.61 Publication and dissemination quick availability of, 3.16 advisory committee role, 14.78–14.80

664

©International Monetary Fund. Not for Redistribution INDEX analysis of contributions to change, 14.22–14.25 Published sources for data availability to users, 1.321, 14.2 company websites, 7.60–7.61 average prices for categories of goods and services trade publications, 7.59 and, 14.12 Purposive sampling base periods and, 14.8 compared with random sampling, 1.85 community access to public interest information, 1.402 description, 1.81, 6.106 confidentiality versus accessibility, 14.54–14.62 knowledgeability of the establishment’s staff and, 6.106 data accuracy versus timeliness of the release, selection of individual commodities to be priced within 14.51–14.53 selected establishments, 1.84 data security and, 1.402 selection of transactions, 6.108 developing XMPIs and, 1.395–1.403 stratification of products, 6.107 dissemination issues, 14.49–14.71 weights for transactions, 6.109 economic commentary and interpretation of index, 14.26–14.27 electronic release format, 14.63–14.66 Q enhancing user analysis, 1.396 explanation of different uses of XMPIs, 14.72–14.73 Quadratic mean of order r superlative indices explanatory notes, 1.399 description and equations, 18.76–18.87, 18.90 field visits by compilers, 13.80 equalities, 18.89 forms of, 1.320, 1.400 Quality change and hedonics importance of the publication process, 13.76 hedonic prices and implicit markets, 22.12–22.52 importance of XMPIs, 1.318, 14.1 overview, 22.1–22.11 index quality issues, 14.81–14.83 Quality control limitations on data dissemination due to sample size, customer focus and, 13.90 14.69–14.71 description, 13.90 model press release, bulletin, and methodological European Foundation for Quality Management statement, 14.39–14.45 Excellence Model, 13.94 news releases and, 13.78 examples and case studies of quality systems, ongoing consultation with users, 1.403 13.92–13.96 overview, 14.1–14.3 independent advisory boards and, 13.96 presentation of methodology, 14.74–14.77 ISO 9000, 13.95 presentation of related or alternative measures, production process and, 13.91 14.28–14.38 repricing process and, 13.64–13.71 producing XMPIs in foreign currency terms, 14.28 Total Quality Management, 13.93 publication goals, 1.395 Quantity proportionality test publication selling prices and electronic access challenges to, 6.25 charges, 1.402 description, 6.26 reference periods, 14.7–14.8 price dispersion test and, 6.25 revision policy, 14.67–14.68 Quantity reversal test rounding of figures, 14.10 description, 1.189 seasonal adjustment and smoothing of indices, equation, 17.45 14.15–14.21 Törnqvist price index and, 17.34 security of websites and, 13.77 Quantity weights symmetry test simultaneous release of XMPIs and PPIs, 13.79 equation, 17.111 simultaneous release to all users, 14.50 Questionnaires standards for, 14.46–14.48 automated telephone data submission, 7.48–7.49 subaggregate indices, 14.33–14.38 checklist design for, 7.39 tables and charts and, 14.23 “comments” space, 7.41 tabular views of data, 1.397 confidentiality and, 7.103 terms of trade indices and, 14.30 dealing with refusals, 7.102 time-series presentation of level and change, delinquency follow-up, 7.98–7.100 14.4–14.14 design for, 7.36–7.41 timeliness of release, 1.319, 1.401, 14.1, 14.51–14.53 e-mail collection, 7.58 timing of the release, 14.49–14.50 electronic capture of data from discs, 7.56 types of presentation, 14.4–14.48 electronic data transfer, 7.57 user consultation, 14.72–14.83 Internet data provision, 7.54–7.55 XMPI by locality, origin, or destination rather than layout of, 7.37 commodity type, 14.29 objectives of, 7.38

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Questionnaires (continued) Resampling personal interviews, 7.50–7.52 adding new commodities, 1.97 postal surveys, 7.43–7.47 description, 1.95 respondent relations, 7.101–7.105 dropping commodities, 1.96 surveys of respondents’ views, 7.105 practicality of, 1.96 tailored form with unique commodity descriptions for Resident’s perspective each respondent, 7.40 behavioral assumptions for (table), 18.1 telephone interviews, 7.53 customs data and, 6.14 description, 18.7 economic theory and, 18.5–18.127 R international trade flows, 1.43, 4.4, 4.17 uses of XMPIs and, 1.30, 1.39 Random sampling Resource management. See Organizational structure and compared with purposive sampling, 1.85 resource management cutoff sampling and, 1.83 Reuters News Service description, 1.81 spot prices for gasoline, 11.64 probability sampling and, 6.47 Revolutionary new goods and services, 1.140, 9.23–9.24, Rebates 9.36–9.37, 9.39, 9.45, 22.82–22.84 changes in levels of, 7.73 Rolling-year annual indices complicating factors, 7.68 artificial data set and, 23.47–23.50 description, 7.67 chained, 23.49, 23.51–23.54 as a discount, 7.72 description, 1.136, 23.45 importance of each level of, 7.77 drawbacks to, 23.54 list prices and, 7.24 forecasting using month-to-month annual basket indices, monetary values and, 7.75 23.91–23.97 practical problems with, 7.69 predicting using current-period year-over-year monthly pricing basis and, 7.74, 7.76 index, 23.55–23.62 retrospective price falls and, 7.69–7.70, 7.78 restrictions on preferences, 23.46 treatment of in XMPIs, 7.71–7.78 smoothing of, 23.50 Reference periods as targets for forecasts, 23.61 “base period,” 10.109, 14.8 Rothwell, Doris, 11.15 higher-level indices and, 10.107–10.109, 10.131–10.132 Rothwell index index reference period, 10.107, 14.8 agriculture products and, 11.15–11.18, 11.31 price reference period, 10.107, 14.8 description, 23.87 publication and dissemination of data and, 14.7–14.8 equations for, 23.87 weight reference period, 10.107, 14.8 Lowe index and, 23.89 Replacement universe Turvey artificial data set and, 23.88 new goods and services and, 9.34–9.36, 9.45, 9.50–9.52, 22.3–22.4 Repricing process S algorithms and, 13.70–13.71, 13.74 data collection methods, 13.47 Sampling issues in price collection. See also Price collection data entry queries, 13.54–13.63 accuracy issues, 6.35–6.36, 6.80 dealing with queries, 13.62 actual market transaction prices, 1.366 follow-up to data collection, 13.52 administrative sources, 6.1, 6.31–6.32 maximum prices and, 13.60 aim of price collection, 1.363 missing data check, 13.56–13.57 aim of sampling, 6.7 monitoring response rates, 13.51 breaks in the continuity of the series of price observations price change and, 13.59 and, 1.94 quality control, 13.64–13.71 business registers and, 6.62, 6.64–6.65, 6.123 quote reports, 13.69 changing populations and, 6.10 report generation, 13.68 changing universe of establishments and, 1.37, 1.86, 1.93 respondent cooperation and, 13.49–13.50 collecting transaction prices, 6.12 review of data, 13.64 commodity specifications, 1.89 role of transfer prices, 13.63 common problems in price survey sampling, 6.35–6.39 specification change and, 13.58 confidentiality issues, 6.39 steps in, 13.46 continuity of price collection, 1.91–1.94 validation checks, 13.54, 13.67 coverage of the external trade price survey and, 6.8

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©International Monetary Fund. Not for Redistribution INDEX cutoff sampling procedures, 1.81, 1.83, 6.44, 6.57–6.60, sampling frames, 1.82, 6.8, 6.30, 6.37, 6.62–6.68, 6.89, 6.94, 6.99–6.105, 6.123 12.32–12.33 date of recording transactions, 6.15 sampling techniques, 1.81, 6.42–6.85 developing countries and, 6.96–6.97 selecting products and transactions in the establishment, documentation of data, 13.81–13.89 6.99–6.105 elementary aggregates, 1.77–1.78, 183 selection of establishments, 6.89–6.95 establishment surveys and, 6.1, 6.2, 6.5, 6.27–6.34, selection stages, 1.80 6.86–6.122 specification pricing, 1.365, 1.371, 1.378–1.382 estimates of variability in price movements, 6.54 starting position, 6.11–6.16 estimation process, 13.7, 13.72–13.75 steps to gain enough information to design a survey, 6.123 example of sample selection and recruitment of stratification and, 6.37, 6.61, 6.66, 6.75–6.79, 6.87, 6.123 establishments, 6.86–6.110, 6.123 structured product descriptions, 6.16 explicit internal weights and, 1.369 summary of sampling strategies, 6.123–6.124 export and import price indices and, 6.8 surveying enterprises to identify elementary items, 6.27–6.34 factors to consider in sourcing data to trade price indices, systematic sampling, 6.90, 6.92 6.33–6.34 target population and, 6.37 frequency and timing, 1.88 testing customs elementary aggregates for multiple Harmonized System and, 6.1, 6.2 elementary items, 6.17–6.34 ideal sampling techniques, 6.6 transfer prices, 1.98 initiation phase, 13.7 two-stage sampling scheme, 6.74, 6.76 input editing, 1.373 unit values and, 6.1–6.4 interviews of sampled businesses, 1.409 valuation principles, 6.13–6.14 introducing a new sample of establishments, variances and, 6.81–6.84 6.116–6.122 Seasonal goods and services. See also Agriculture; legislative issues, 6.39 Consumption of goods and services; Coverage of level of available resources and, 6.38 goods and services; New goods and services mail questionnaires, 1.372, 1.377 annual basket indices with carryforward of unavailable management process and, 13.33–13.34 prices, 23.78–23.84 matched-model method, 1.86, 1.91, 1.137 annual basket indices with imputation of unavailable matched price changes, 1.91 prices, 23.85–23.86, 23.98 monitoring the quality of data, 13.34 biases and, 23.4, 23.41, 23.51, 23.70–23.75, 23.98 most important steps in, 6.7 challenges for price statisticians, 23.1 output editing, 1.375 description, 1.133 personal visits to a business and, 1.370, 13.35 examples of important seasonal products, 23.3 point-in-time prices, 1.363 exceptional months and, 14.17 PPI surveys and, 6.37 forecasting rolling-year indices using month-to-month price collection methods, 1.90 annual basket indices, 23.91–23.97 price dispersion test, 6.19–6.24 imputation procedures, 1.135 pricing the same commodities for as long as possible, 1.92 maximum overlap month-to-month price indices, pricing to constant quality, 1.365, 1.378 23.63–23.77, 23.98 probability proportionate to size sampling, 6.37, 6.42–6.56, nonoverlapping qualities of adjustment, 1.124 6.60, 6.81–6.84, 6.91, 6.92, 6.99–6.105, 6.123 price collection and, 7.113 publication issues, 13.7, 13.76–13.80 publication and dissemination of data and, 14.15–14.21 pure price changes, 1.91 rolling-year annual indices, 1.136, 23.45–23.62, quantity proportionality test, 6.25–6.26 23.91–23.97, 23.98 random and purposive sampling, 1.80–1.86, 6.106–6.109 seasonal adjustment factors, 23.57–23.59, 23.93 recording product specifications, 6.110 smoothing of indices and, 14.15–14.21, 23.50 regular price collection, 1.87 sources of fluctuations, 1.134, 23.2, 23.50 representative commodities, 1.93 strongly seasonal products, 23.1 repricing process, 13.7, 13.46–13.71 traditional approach to dealing with, 23.4 resampling, 1.95–1.97 treatment of quality change and, 8.22–8.23 reviews of business samples, 1.411 Turvey’s artificial data set and, 23.5, 23.14–23.15, 23.26, sample allocation, 6.79–6.85 23.30–23.34, 23.41, 23.47–23.50, 23.55–23.62, sample design, 6.9, 6.30, 6.40–6.85 23.80–23.81, 23.88, 23.96 sample maintenance, 6.111, 6.123 weakly seasonal products, 23.1 sample rotation, 6.112–6.122, 6.123 year-over-year annual indices, 23.35–23.44 sample size and, 6.38 year-over-year monthly indices, 23.16–23.34, sample structure, 6.69–6.74 23.55–23.62, 23.98

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SEHIs. See Superlative and exact hedonic indices hybrid indices and, 1.327 Services industry interviews of sampled businesses, 1.409 balance of payments definition, 11.101 list of, 1.329 complications in measurement, 11.100 mail questionnaires and, 1.372, 1.377 international services definition, 11.101 maintaining price series and samples of businesses and need for better measurement, 11.99 commodity specifications, 1.404–1.411 pricing issues important in international trade, nonmarket transactions and, 1.336 11.99–11.128 personal visits to a business and, 1.370, 1.405 transportation services, 11.102–11.126 prerequisites for the construction and compilation Shepherd’s Lemma of, 1.328 Diewert Morrison index and, 24.128 pure price changes and, 1.378 SITC, Rev. 4. See Standard International Trade reviewing and reweighting the index, 1.412–1.418 Classification, Revision 4 reviewing data, 1.406 SNA. See 2008 System of National Accounts reviews of business samples, 1.411 Special Data Dissemination Standard, 14.47 rolling program of evaluating data sources, 1.409, 1.414 Staffing issues selection of the level in the index hierarchy, 1.344–1.346 adequate size of staff, 13.11 stakeholder consultations, 1.331 appropriate mix of skills, 13.13 summary of, 1.419–1.422 computer specialists’ role, 13.16 updating weights, 1.408 data collectors’ role, 13.17 Stine, O.C., 11.15 documentation of data and, 13.82 Stochastic approach to index number theory economists’ role, 13.14 background of, 17.74 experienced staff needs, 13.11 Carli index and, 1.210, 17.74 outsourcing, 13.18–13.21 compared with the economic approach to index number separate financial units, 13.12 theory, 18.1 staff input, 13.28 description, 1.208 statisticians’ role, 13.15 elementary price indices, 21.85–21.92 training and development, 13.22–13.24 Jevons index and, 1.211, 17.74–17.76 Standard International Trade Classification, Revision 3 Keynes’s criticism of, 17.76–17.77 treatment of specific products and issues, 11.1, sampling problems and, 17.88 11.6–11.8, 11.12–11.98 single type of commodity and, 1.209 Standard International Trade Classification, Revision 4 unweighted, 1.210–1.211, 17.6–17.7 description, 1.53 using raw data with an axiomatic approach, 17.93 goods groupings, 4.61 weighted approach, 1.212–1.214, 17.80–17.93 valuation of goods and, 4.38 Strategies for Price and Quantity Measurement in Statistical Classification of Products by Activity in the External Trade European Union background of, 3.19 treatment of specific products and issues and, 11.3 coverage limitations, 2.34 Statistical Office of the European Communities methods for data collection, 2.10 monthly data submission requirement, 7.17 need to stratify unit values, 2.68 PLANISTAT Europe, 2.63 revision of, 3.23 Statistical Office of the European Union superiority of price indices, 2.74 producer price indices and, 3.14 unit value bias, 2.14–2.16 Steps for developing XMPIs Structuring of XMPIs accuracy issues, 1.404 horizontal structure, 13.9 adjusting for changes in quality, 1.378–1.387 resource availability and, 13.8, 13.10 business samples and, 1.353–1.361 vertical structure, 13.9 calculating the index, 1.388–1.394 Substitution effects changes in commodities and, 1.410 Laspeyres and Paasche indices and, 1.164–1.165 collecting and editing the prices, 1.361–1.377 theoretical export output indices and, 1.228 data sources, 1.326 Superlative and exact hedonic indices deciding on the index coverage and classification axiomatic properties, 8.175–8.177 structure, 1.334–1.340 calculation of, 8.180 deriving the weighting pattern, 1.341–1.352 description, 8.178, 18.52, 22.64–22.70 designing the sample, 1.353–1.360 matched data and, 8.181 determining the objectives, scope, and conceptual basis Superlative indices. See also Superlative and exact hedonic of the index, 1.330–1.333, 6.123 indices; specific indices disseminating the indices, 1.395–1.403 allowing for substitution, 1.245–1.246

668

approximation properties of, 18.88–18.92 international comparisons of expenditure on goods and artificial data sets and, 20.131–20.145 services, 15.79–15.81 data requirements and calculation issues, 1.243–1.244 labor services price indices, 15.77 description, 1.142, 1.230 major goods and services price statistics and national establishment surveys and, 1.260–1.261 accounts, 15.6–15.78 estimating theoretical export output indices by, national accounts, 15.6–15.78 1.228–1.246 overview, 15.1–15.5 export output price indices, 18.52–18.98 PPI variants, 15.57–15.64 flexible functional form and, 1.230, 1.232 price index descriptions, 15.2 homogeneous separability, 18.53–18.63 price indices for final uses, 15.74 Hotelling’s Lemma and, 18.64–18.69 price indices for total supply, 15.71–15.73 import price indices and, 18.113 purchasing power parties, 15.79–15.81 mathematics of the revenue maximization problem, relationship of PPI to other major price indices, 18.64–18.69 15.65–15.66 quadratic mean of order r, 18.76–18.87 summary, 15.78 representativity bias, 1.239–1.242 two variants of export and import indices in the national retrospective, 10.171 accounts and their relationship to other price sample-based superlative elementary price indices, 15.70 indices, 21.74 XMPIs and other price series, 15.57–15.69 selection criteria, 1.236–1.237 as symmetric indices, 1.233–1.235 terms of trade and, 1.323, 24.8 T two-stage aggregation and, 18.93–18.98, 20.136–20.145 unit value indices and, 2.19, 2.73 Target indices Wold’s Identity and, 18.64–18.69 aggregation by product or activity classification, Supply and use tables 10.96–10.99 artificial data set for, 20.79–20.86 basket indices and, 10.94 case against valuing the SUT at basic prices, 4.37 description, 10.93 compilation of national accounts and, 4.39, 15.10–15.12, Lowe indices, 10.94 15.46–15.53 Tariff prices description, 15.53 calculation of elementary price indices using weights development of, 1.36 and, 10.73 purchasers’ prices and, 4.35–4.36 Tax issues. See Production and expenditure approaches to supply and use of goods and services in the aggregate, exports and imports; Transfer prices 15.10–15.12 Telephone interviews treatment of quality change and, 8.54–8.55 advantages and disadvantages of, 7.53 2008 System of National Accounts framework, 15.8 Terms of trade valuation and, 4.27–4.28, 4.31–4.39 analysis of, 1.322 in volume terms, 15.54–15.56 calculation of, 1.322 XMPI compilers and, 4.38 combined effects of changes in the real prices of exports SUTs. See Supply and use tables and imports, 24.82–24.105 Sweden definition, 24.8 import price and import unit value indices, 2.63–2.66 deterioration in, 24.7 Symmetric indices Diewert Lawrence index and, 24.33–24.38, 24.49, Fisher price indices, 1.177, 16.19–16.33 24.50–24.55, 24.65–24.71, 24.80, 24.90–24.92, Laspeyres indices, 1.176, 16.19–16.24, 18.6, 18.44 24.120–24.124, 24.130 Paasche indices, 1.176, 16.19–16.24, 18.6, 18.44 Diewert Morrison index and, 24.39–24.55, 24.72–24.80, superlative indices as, 1.233–1.235 24.93–24.105, 24.125–24.135 Törnqvist price index, 1.179 effects of changes in the real price of exports, Walsh price index, 1.178 24.20–24.57 Symmetric treatment of establishments/commodities test effects of changes in the real price of imports, equation, 21.41 24.58–24.81 System of price statistics effects on household cost-of-living indices of changes in CPI versus PPI as a measure of inflation in market the prices of directly imported goods and services, transactions, 15.67–15.69 1.324, 24.106–24.135 framework for, 15.78 empirical measures of the effects of changes in the real GDP price deflator, 15.75–15.76 price of exports on the growth of real income importance of value aggregates, 15.1 generated by the production sector, 24.33–24.49

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Terms of trade (continued) value-added price deflators, 20.160–20.187 empirical measures of the effects on income of changes value of r and, 1.236 in household import prices, 24.120–24.135 Walsh price index and, 16.94 Fisher price indices and, 24.32, 24.89 weighted stochastic approach and, 2.212, 17.83–17.86 improvement in, 24.7, 24.9–24.14 Törnqvist Theil price index Laspeyres indices and, 24.8, 24.24–24.27, 24.38, 24.59– artificial data sets and, 20.131–30.135 24.61, 24.65, 24.66, 24.83–24.85, 24.89–24.90, 24.99 axiomatic approach to index number theory and, 17.60, measurement of, 3.42 17.120–17.129 measuring the effects of changes in, 24.1–24.133 determinateness as to prices test and, 17.127 net domestic product of a country and, 24.11–24.18 economic approach to index number theory and, overview, 24.1–24.5 18.46–18.51, 21.20 Paasche indices and, 24.28–24.32, 24.62–24.65, 24.66, equalities, 18.89 24.86–24.90, 24.99 equations for, 17.120, 17.123, 18.87, 20.131 real net product, 24.21–24.24 Fisher price indices and, 18.91 steps in analysis of, 1.323 justification for, 18.87, 18.110–18.111 superlative indices and, 1.323, 24.8 natural logarithm, 18.46 Taylor series approximation and, 24.130 proof of optimality in second bilateral test approach, technical introduction, 24.6–24.19 17.135–17.144 theoretical measures of the effects on income of changes superlative nature of, 18.91 in household import prices, 24.111–24.119 two-stage aggregation and, 18.95–18.97, 20.137 Theil index. See Törnqvist Theil price index Total Quality Management Theil, H. description, 13.93 weighted stochastic approach and, 17.81–17.86, 17.90, 17.91 TQM. See Total Quality Management Time reversal test Trade value weights Carli index and, 1.277, 10.23, 10.43, 12.23, 21.32 price updating of, 10.111–10.128 description, 1.189 Training and development Dutot index and, 10.23, 21.32 basic components of a training program, 13.24 elementary price indices and, 21.31–21.33 manuals and desk instructions and, 13.85 equations, 17.44, 17.109, 17.132, 21.44 staff motivation and, 13.22 Fisher price index and, 16.21, 18.4, 24.32 written training plans, 13.23 Jevons index and, 10.23, 21.32 Transfer prices Laspeyres indices and, 1.193–1.194, 1.196–1.197, 1.228, ad valorem trade taxes are jointly negative (case), 16.20, 17.44, 17.61, 17.87, 21.45 19.69–19.73 Lowe indices and, 1.195–1.197, 1.201 ad valorem trade taxes are jointly positive (case), Paasche indices and, 1.193–1.194, 1.196–1.197, 1.228, 19.62–19.68 16.20, 17.44, 17.61, 17.87 alternative concepts, 19.13–19.18 pure price indices and, 16.28, 16.31 alternatives to the firm’s listed transfer price, 1.101 unequivocal quantity index and, 17.64 “arm’s-length” transaction prices and, 1.98, 1.337, unit value indices and, 2.28 11.145–11.148, 19.5, 19.13–19.14, 19.32, 19.78, Walsh index and, 17.61 19.82, 19.98 year-over-year Laspeyres and Paasche indices for collecting transfer prices for exports, 19.84–19.89 seasonal products, 23.25 collecting transfer prices for imports, 19.90–19.95 Young index and, 1.192–1.193, 12.23, 17.61 collection by statistical agencies, 19.74–19.101, 19.103 Törnqvist price index comparability and, 19.76–19.77 axiomatic approach to index number theory and, 17.60 comparable uncontrolled price method, 19.80 description, 1.202 cost plus method, 19.80 equation for, 1.179 country 2 (exporting country) is the low tax country Fisher price index and, 1.253, 3.6, 16.94 (case), 19.47–19.56 increases registered, 1.251 country 1 (importing country) is the low tax country Jevons index and, 21.59–21.61 (case), 19.38–19.45 national producer price indices and, 20.146–20.159 declared transfer price, 19.84, 19.89, 19.90, 19.95 output price index, 1.229 description, 1.99, 7.86, 19.1–19.2 quantity index for GDP, 20.51 downstream (and upstream) internal transactions, 19.84, ranking using the axiomatic approach, 1.200 19.88, 19.90, 19.94 stochastic approach to index number theory and, 3.6, economic approach to, 19.7–19.104 21.20, 22.64 economic transfer price, 19.13, 19.17 superlative nature of, 1.230, 8.175, 18.4, 18.48 economic transfer prices compared with strategically as target index, 10.93 chosen transfer prices, 1.100

670

efficient transfer price, 19.13, 19.15, 19.33 Traveler surveys external comparable prices, 19.78, 19.84, 19.87, 19.90, description, 1.72 19.93, 19.103 Treatment of quality change. See also Quality change external markets and, 19.19–19.73 and hedonics externally referenced comparable prices, 1.101, 19.84, background for practical issues, 22.1–22.104 19.86, 19.90, 19.92, 19.103 calculating the index and, 1.390 feasibility and administrative costs and, 19.98 chaining, 8.186–8.192 global multinational profit maximization problem, chapter analysis, 8.2, 8.24 19.28–19.32, 19.49, 19.59 characteristics of the old and replacement model internal comparable prices, 1.101, 19.78–19.79, 19.84, and, 1.105 19.85, 19.90, 19.91, 19.103 choice of method for dealing with missing intra-company, 11.144–11.151, 19.4, 19.6 commodities, 8.6 joint profit maximization problem, 19.22 clarifying the nature of the adjustment that is required in marginal revenue and, 19.23, 19.29 principle, 1.107 methods for income tax purposes, 19.80–19.81 commodities that have permanently disappeared and their no external market and no trade or profit taxes, replacements, 10.60–10.70 19.28–19.34 comparative quality description, 8.4 no trade or income taxes and, 19.19–19.34 conceptual issues, 8.33–8.55 OECD guidelines, 19.75–19.77, 19.97 cost-of-living index and, 8.39 overview, 19.7–19.12 developing XMPIs and, 1.378–1.387 practical issues in method selection, 19.96–19.101 elementary price indices and, 1.302 prevalence of transfer pricing in international trade, errors and bias and, 12.39–12.43 19.3–19.6 “essentially the same” items, 8.2–8.3 price changes of product groups aggregated across firms evaluation of the effect of quality change on price, and, 19.83 1.102–1.109 price collection and, 7.86 example of, 1.106 pricing with profit taxes, 19.35–19.58 explicit methods of quality adjustment, 1.105, 1.108, pricing with trade taxes and no income taxes, 19.59–19.73 1.343, 8.100–8.145 profit maximizing transfer price, 19.13, 19.16, 19.51 fixed-input output export price index and, 8.34–8.38, repricing process and, 13.63 8.43–8.45 resale price method, 11.149, 19.80 fixed-output input import price index, 8.39–8.42, selecting the best reporting method, 19.74–19.101 8.43–8.45 strategic choice of, 19.102 hedonic method, 1.29–1.31, 1.109, 8.28, 8.115–8.145, trade or profits taxes and no external market and, 8.149–8.150, 8.160–8.185 19.35–19.73 high-technology and other sectors with rapid turnover of transactional net margin method, 19.80 models, 8.155–8.192 Transitivity test illustration of some quality-adjustment methods, Carli index and, 1.277, 10.23 8.193–8.198 Dutot index and, 10.23, 10.43 implicit methods, 1.105, 8.7 equation, 17.110 importance of, 8.1–8.8 Jevons index and, 10.23 long-run compared with short-run comparisons, 8.63, Transportation services 8.67, 8.88, 8.94, 8.193–8.207 air passenger fares, 11.109–11.113 matched-models approach, 8.9–8.21, 8.155–8.192 airfreight index, 11.103–11.108 methods of quality adjustment when matched items are crude oil tanker freight services, 11.114–11.117 unavailable, 8.56–8.154 methodologies used to produce XMPIs for, missing commodities, 9.1, 9.2 11.102–11.126 missing prices and, 8.8 ocean liner freight, 11.118–11.121 nature of quality change, 8.26–8.32 travel and tourism, 11.122–11.126 need for quality adjustments, 1.104 value-added price deflators for, 20.166–20.168 new model of motor vehicle prices example, 1.386, Travel and tourism 8.27–8.28 data source for, 11.124 new packaging example, 1.384 exclusion of tour packages, 11.125 price collection and, 7.79–7.80 expenditures by foreign visitors to the United States, quality descriptions of new commodities, 8.5 11.122 quantification of quality characteristics and, 8.30–8.31 items to be priced for the index, 11.123 resource cost approach, 8.33–8.38, 8.42, 8.48 price change measurement, 11.122 sampling issues, 8.12–8.15, 9.1 trade weights, 11.126 seasonal commodities, 1.124, 1.133–1.136

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Treatment of quality change (continued) Unique commodities shifts in demand and supply and, 8.29 approaches to solving problems with, 7.81–7.84 single-stage and two-stage indices, 8.205–8.207 component pricing and, 7.81 structured commodity descriptions and, 8.3 description, 7.81 sufficient data on characteristics and, 8.32 model pricing and, 7.81 supply and use tables and, 8.54–8.55 persuading respondents of the value of approaches to technology changes and, 8.46–8.53 solving problems with, 7.83 temporarily missing commodities, 8.22–8.23, 12.45 repeat recent real sale and, 7.81 temporarily missing prices, 10.51–10.59 specification pricing and, 7.81 user value approach, 8.33, 8.39–8.42 Unit value indices Treatment of specific products and issues advantages of, 1.15, 2.39 agriculture, 11.12–11.44 aggregate level and, 2.42 clothing, 11.45–11.59 alternative index number formulas, 1.16–1.18 crude petroleum and gasoline, 11.60–11.65 axiomatic approach, 2.17–2.31, 2.82 electronic computers, 11.68–11.83 basis for, 1.7 metals, 11.66–11.67 better formulas for, 2.73 motor vehicles, 11.84–11.98 causes for concern, 2.37–2.41 overview, 11.1–11.11 circularity test and, 2.28 pricing issues in international trade, 11.129–11.158 comparable but not identical items, 1.13 problems encountered, 11.4–11.9 compared with export and import price changes, 2.44 services sector, 11.99–11.128 compared with price indices, 2.1, 2.13, 2.43, 2.74 Turvey’s artificial data set composition effects, 6.1 seasonal goods and services and, 23.5, cost-of-living index and, 2.32 23.14–23.15, 23.26, 23.30–23.34, 23.41, countries with a tight or medium budget and, 2.2, 23.47–23.50, 23.55–23.62, 23.80–23.81, 2.8–2.9, 2.81 23.88, 23.96 coverage and low resource cost of, 1.15 2008 System of National Accounts. See also Supply and coverage limitations, 2.34–2.36 use tables customs data and, 1.9, 2.2, 2.3, 2.11, 2.13, 2.20, 2.26, conceptual framework for XMPIs, 1.34–1.36 2.34–2.35, 2.73, 2.78, 5.10, 5.14 coverage, 15.8 deficiencies of, 2.23 customs data and, 5.17 deletion routines and, 2.70–2.72 data principles, 7.21 description, 3.17–3.18, 10.86–10.88 description, 15.7 dual strategy for, 2.10 duties and, 11.138 economic approach, 2.32–2.33, 2.82 goods and services account, 1.38 elementary aggregates and, 2.5, 10.86–10.90 “goods” definition, 4.3 elementary-level unit value indices, 1.7, 2.5, 21.3–21.4, international standard recommendations, 4.56 21.22 market and nonmarket goods and services and, 18.17 errors and bias in the use of, 1.14–1.18, 2.3, 2.12–2.48, nonresident’s perspective, 18.8 3.17, 6.1 production accounts, 1.38, 18.9, 18.14–18.18, establishment surveys, 1.23, 1.27, 2.39, 2.54, 2.72, 20.17–20.19 2.74–2.80, 2.87 role of price indices, 20.2 evidence of errors and bias in using unit value indices scope of XMPIs, 1.330 based on customs data, 1.19–1.20 supply and use tables, 4.31–4.39 global indices and, 2.55, 2.87 system of price statistics, 15.1–15.81 gradualist approach, 2.75–2.77, 2.86, 6.3 terms of trade and, 3.42 heterogeneous items, 2.19–2.31 unit value indices and, 1.12, 2.11, 21.19 homogeneous items, 2.17–2.18, 10.89, 21.19 valuation issues, 4.21, 4.31–4.39, 6.13 hybrid indices and, 1.21–1.25, 2.49–2.66, 2.84, 6.2, 10.90 XMPI calculation guidance, 1.4 hybrid strategy for, 2.10 identity or constant price test and, 2.22 illustration of bias, 2.14–2.16 improvements to, 1.26 U imputation, 2.57–2.58 international commodity price indices, 1.23 UNCTAD. See United Nations Conference on Trade international recommendations, 2.7–2.11 and Development invariance to changes in the units of measurement test UNECE. See United Nations Economic Commission and, 2.25, 2.27 for Europe limitations of, 2.7, 2.34–2.36, 2.88–2.90

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mirror price indices, 1.23, 2.55, 2.87, 7.1 Inter-Secretariat Working Group on Price Statistics, 3.28, “plug-ins” for price changes, 1.3, 1.17, 2.32–2.33 3.34–3.35 predominant method for compiling XMPIs, 2.1 routines for outlier detection, 2.71 price changes and, 1.3, 1.8, 1.17 United Nations Standard Country or Area Codes for price collection and, 7.85 Statistical Use price discrimination and, 7.90 regional data, 1.54 producer price indices and, 1.23, 2.56 United Nations Statistical Commission product test and, 2.28 International Working Group on Price Statistics, 3.23 proportionality in current period prices and, 2.24 United States. See also specific government agencies proportionality test and, 2.21 expression of XMPIs in foreign currency, 11.141 role in XMPI measurement, 6.17–6.21 probability proportionate to size sampling, 6.91 sampling issues in price collection and, 6.1–6.4 seasonal agricultural commodities in the U.S. XMPI, sources of alternative measures of price changes, 11.41–11.44 2.54–2.58 unit value methodology changes, 2.45 stages of calculation, 2.5 wholesale price index and, 3.13 strategic options for compilation of XMPIs, XMPI sample design, 6.77 1.21–1.27, 2.84 U.S. BLS. See U.S. Bureau of Labor Statistics strategies for improving, 2.67–2.73, 2.85 U.S. Bureau of Economic Analysis stratification of unit values and, 2.68–2.69, 2.88–2.90 transfer pricing statistics, 19.3 suitability for aggregation over homogeneous items, U.S. Bureau of Labor Statistics 1.10–1.13 hedonic regressions and, 22.26 summary, 2.81–2.87 International Price Program, 8.8 superlative indices and, 2.19, 2.73 methodology to measure price changes for imported time reversal test and, 2.28 crude petroleum, 11.60–11.65 trade effect and, 2.48 services industry indices and, 11.101–11.126 unique commodities and, 2.36, 2.38 spot prices for gasoline, 11.64 unit value bias in the measurement of price changes, 1.46 structure for computers, 11.71 units of measurement, 2.26 use of export data from the U.S. Department of uses of, 2.4 Agriculture, 11.12 using unit value subindices for homogeneous product U.S. Customs Service groups only, 2.51–2.53 transfer prices and, 19.5 variants for statistical authorities with considerable U.S. Department of Agriculture budgetary resources, 2.10 export data, 11.12 United Kingdom U.S. Department of Energy Government Statistical Service’s use of meat prices from crude oil tanker freight services data source, 11.116 the Meat and Livestock Commission, 11.12 crude petroleum and gasoline price changes, 11.61 Office for National Statistics’ survey, 7.33, 7.41 U.S. Department of Transportation price discrimination and, 7.89 air passenger fare sampling frame, 11.111 review of unit value methodology, 2.45 airfreight index sampling frame, 11.106 wholesale price index and, 3.14 U.S. Energy Information Administration United Nations crude petroleum and gasoline price changes, 11.62, 11.64 case studies on the development of unit value indices, 2.7 Weekly Petroleum Status Report, 11.64 c.i.f. and f.o.b. value guidelines, 4.15, 4.18 U.S. Maritime Administration c.i.f and f.o.b price recommendations, 1.42 ocean liner freight sampling frame, 11.119 customs-based unit value indices, 2.2 U.S. Producer Price Index Fundamental Principles of Official Statistics, 14.3, 14.46 estimating price changes for electronic computers, “Guidelines on Principles of a System of Price and 11.68–11.83 Quantity Statistics,” 3.19 User consultation International Merchandise Trade Statistics: Concepts and explanation of different uses of XMPIs, 14.72–14.74 Definitions, 5.7 presentation of methodology, 14.74–14.77 recording practice guidelines, 4.23 Uses of XMPIs Strategies for Price and Quantity Measurement in analysis of competitiveness and productivity, 3.47–3.49 External Trade, 2.2, 2.7, 2.8, 2.10, 2.14–2.16, 2.34, compared with PPI and CPI, 1.33 2.68, 2.74, 3.19 compilation of national accounts in volume terms, 3.54 United Nations Conference on Trade and Development conceptual framework for, 1.34 Automated System for Customs Data, 1.14, 2.2 as deflators, 1.31, 1.36, 1.318, 3.37, 4.34, 12.28 United Nations Economic Commission for Europe demand for XMPI data and, 1.37 ILO manual revisions and, 3.28 exchange rate analysis, 3.53

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Uses of XMPIs (continued) description, 16.7 explanation of different uses, 14.72–14.74 equation for, 16.8 forecasting future price trends, 3.52 importance of, 15.1 government economic policy, 3.43–3.46 Verification of prices inflationary pressure and, 3.41 key checks, 7.106 measuring inflation, 3.52 verification tolerances, 7.108–7.111 nonresident’s perspective, 1.31–1.32, 1.39 Voorburg Group overview, 13.1 CPI Manual and PPI Manual revisions and, 3.35 resident unit’s perspective, 1.30, 1.39 need for better measurement in the services industry, supply and use tables, 1.36 11.99 terms of trade and, 3.42 trade contracts, 3.50–3.51 world economy units involved, 1.33 W

Walsh, C.M. V geometric price index and, 17.105, 17.114, 17.124–17.125, 17.128 Validation of data homogeneity tests and, 17.103–17.104 customs data, 5.9 price reciprocal test, 17.125–17.126 price collection and, 7.27 proportionality test proposal, 17.38 repricing process and, 13.54, 13.67 symmetry tests and, 17.42 Valuation. See also Price coverage and valuation time reversal test and, 17.44 analytical needs, 4.27–4.30 weighted average of price relatives, 17.94 basic price and, 4.14, 4.16, 6.13 weighted stochastic approach and, 17.80 change of ownership and, 4.21–4.26 Walsh price indices cost, insurance, and freight values, 4.15, 4.18 advantage of, 1.238, 21.19 data derived from customs declarations, 4.45–4.48 agricultural products and, 11.36 errors and bias and, 12.31 artificial data sets and, 20.131–30.135 establishment surveys, 4.44, 4.50 circularity test and, 16.93, 16.95–16.96 financial services, 4.54 description, 16.25, 16.27, 16.32, 16.33 free on board values, 4.15, 4.18 distinctive feature of, 1.238 insurance services, 4.53 economic approach to index number theory and, 21.20 international transport charges, 4.22 equations for, 1.178, 18.87, 20.131 methods for, 4.14–4.20 Fisher price index and, 1.253 practice and data sources, 4.43–4.50 importance of weights, 17.7–17.9 principles for analytical purposes, 4.20 invariance to proportional changes in current prices test producer’s price and, 4.14 and, 1.206 purchaser’s price and, 1.42, 4.14, 4.16, 6.13 preferred target index for a Lowe index, 1.240–1.242 recording practice, 4.23–4.26 purity of, 1.257 resident’s and nonresident’s approach to international quantity index, 17.69 trade flows, 4.17 ranking using the axiomatic approach, 1.200 resident’s perspective and, 4.40–4.42, 6.14 superlative nature of, 1.238, 1.239, 1.249, 18.4, 18.81, sampling issues in price collection and, 6.13–6.14 18.86, 18.91 of services, 4.51–4.54 as target index, 10.93 supply and use tables and, 4.27–4.28 Törnqvist price index and, 16.94 target conceptual basis for, 4.49–4.50 two-stage aggregation, 20.137 timing of recording, 4.20, 4.21–4.26 value of r and, 1.236 unit of account, 4.55 Weights Value-added price deflators basic index number formulas and, 1.142 aggregation over commodities, 20.178–20.181 calculation of elementary price indices using, aggregation over industries, 20.172–20.177 10.71–10.83 national, 20.169–20.171 chained indices and, 1.186, 1.415, 10.133–10.160 services industry and, 20.163–20.165 developing XMPIs and, 1.341–1.352, 1.412–1.418 transportation industry and, 20.166–20.168 elementary aggregates, 1.266–1.267 two-stage value-added price deflators, 20.172–20.181 establishment surveys and, 6.93 Value aggregates frequency of reweighting, 10.136–10.138 decomposition into price and quantity components, hedonic regressions and, 22.96–22.100 16.7–16.18 introduction of new weights, 1.311

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Laspeyres indices and, 1.152 Y Lowe indices and, 1.149, 1.162 reweighting the index, 1.416–1.418, 10.136–10.138, Year-over-year annual indices 10.150–10.156 description, 23.35 stochastic approach to index numbers and, 1.210–1.214 Fisher, Laspeyres, and Paasche indices, 23.36–23.44 superlative indices and, 1.323 Year-over-year monthly indices technology change and, 8.47 chained, 23.30–23.34 trade value weights, 10.111–10.128 Fisher, Laspeyres, and Paasche indices, 23.19–23.34 updating, 1.186, 1.310, 1.312, 1.415, 10.102, 10.137 reasons for, 23.16–23.18 XMPIs as weighted averages of elementary indices, rolling-year annual indices and, 23.55–23.62 10.100–10.110 Young index Wholesale price index calculation of, 1.307–1.308 background of, 3.13–3.14 carry forward of missing prices and, 23.80 Wold’s Identity description, 1.169, 10.117, 16.55, 16.61, 23.80 description, 18.64 elasticity of demand/supply and, 16.57 equations, 18.64–18.66, 18.70 equation for, 1.169 World Bank factoring, 10.129–10.130 XMPI responsibilities, 3.31 Fisher index and, 16.65 World commodity price data geometric version, 1.172–1.175 errors and bias and, 12.57–12.64 imputation method for filling in missing prices and, World Customs Organization 23.85–23.86 Harmonized System and, 4.58 Laspeyres indices and, 1.153, 1.171, 16.56, 16.58–16.59, World Economic Outlook, 1.54 16.61, 23.81 World Trade Organization long-term trends in prices and, 16.57–16.58 Agreement on Valuation, 4.25, 5.7 Lowe indices and, 1.170, 10.118, 10.122–10.126 Harmonized System Code 04041006, 2.60 potential problem with, 16.63 transaction value issues, 4.25–4.26 price-updating the weights, 10.118 XMPI responsibilities, 3.31 production and maintenance of, 1.309–1.312 WPI. See Wholesale price index rebasing, 16.61–16.64 relationship with its time antithesis, 16.107–16.111 sampling issues in price collection and, 6.120 seasonal adjustment, 23.83 X seasonal adjustments, 23.91–23.93 test properties, 17.130–17.134 XMPI Manual. See Export and Import Price Index Manual time reversal test, 1.192–1.193, 12.23 XMPIs. See Export and import price indices time series of monthly, 1.155 XPIs. See Export price indices upward bias of, 12.23

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