Economics And The Price Index (routledge Frontiers Of Political Economy)

Economics and the Price Index A theft amounting to £1 was a capital offence in 1260, and a judge in 1610 affirmed the law could not then be applied since £1 was no longer what it was. Such association of money with a date is well recognized for its importance in very many different connections. Thus arises the need to know how to convert an amount at one date into an equivalent amount at another date. In other words, a price index. The longstanding question concerning how such an index should be constructed is known as ‘The Index Number Problem’. A pervasive long established institution for economics, it is a number issued by the Statistical Office that should tell anyone the ratio of costs of maintaining a given standard of living in two periods where prices differ. For a succession of three periods, the product of the ratios for successive pairs must coincide with the ratio for the endpoints. This is the chain consistency required of price indices. A usual supposition is that the index is determined by an algebraical formula involving price and quantity data for the two reference periods, as with the one or two hundred formulae in the collection of Irving Fisher, always joined with the question of which one to choose, and the perplexity that chain consistency is not obtained with any. Hence finally they should all be abandoned. This is the reality of ‘The Index Number Problem’. Now in this book consistent prices indices for any number of periods are all computed together to make a resolution of the ‘Problem’, proved unique hence never to be joined by others to make a Fisher-like proliferation. That brings to a conclusion an issue giving rise to extensive thought and theory to which over the decades a remarkable number of economists have each contributed a word, or volume. A product of attention to the ‘Problem’ over a half-century, this book should be of interest to all those for whom ‘The Index Number Problem’ remains, beside of perpetual practical concern, a source of fascination. S. N. Afriat, resident of Siena, intermittent adjunct at the University, Mathematics and Economics, permanent Visiting Professor. Carlo Milana, Research Director at ISAE (Istituto di Studi e Analisi Economica), Rome, a public research institution supported by the Italian Ministry of Economy and Finance. A friat is the guru of the price index … his work is a classic illustration of how much we learn from new ways of thinking. Angus Deaton Dwight D. Eisenhower Professor of International Affairs Professor of Economics Princeton University, USA R esearchers interested in price indexes, inter-area comparisons, revealed preference theory, or productivity measurement will find this book an enlightening, entertaining, and highly creative treatise on where the theory should go from here. Marshall Reinsdorf Senior Research Economist US Bureau of Economic Analysis S ydney Afriat is famous for his unique and penet