How relevant is the Paasche index

Many people whose professions are not related to the economy or statistics, constantly wondering about the necessity of economic indices.Of course, not everyone can list more than three indices, and most do not even know such names as the Paasche and Fisher Layspers, not to mention their economic research and writings.

It should be noted that the use of the index helps to identify certain trends in the world of finance and securities, and thereby, avoid economic disasters and crises.The recent economic crisis has made it clear that the consequences of the collapse of the financial systems would be devastating not only for a particular region, but the echoes reverberate in every corner of the Earth.

Paasche index

The index was launched in 1874 by the German scientist G. Paasche.Each index carries a certain meaning.By identifying patterns of relations of certain indicators in particular situations is possible to draw conclusions about the upcoming state of the economy, price changes, increasing or

decreasing the demand.Paasche index shows the change in the price level on the weight of the goods.

Calculation

Paasche Paasche advantage is that its calculation does not require deep mathematical or economic knowledge.Knowing the true level of prices and the level of the period, which is taken as a basis, you can easily calculate their own Paasche index.His next Formula:

Ip = Σp1q1 / Σp0q1,

where Σ - mathematical sign amount;

p1 - the price of products in the reporting period;

p0 - the price of products in the period adopted for the base;

q1 - the volume of sales in the reporting period.

Thus, the Paasche price index shows the ratio of the actual cost of production to the cost of the same volume of products, but sold at prices period taken as a basis.On this basis, it is possible to conclude that the increase or decrease of the general price level, not a separate category.

Urgency price index

modern market is full of products that are not previously existing categories.There was a section of luxury, which implies the presence of objects, the cost of which did not justify the cost of their production.In an inflationary environment, there are groups of products that completely withdraw from the market and, accordingly, can not be considered to calculate the Paasche index.

All this leads to the fact that the Paasche index has become less popular and relevant than, for example, Fischer.This is due, and economic instability, and fashion, and the rapid change in consumer preferences.But regardless of all this, the contribution made to the development of the scientific economic theory and statistics, is invaluable.Paasche index was the tool for accounting of consumer prices, and has also brought huge benefits in due time.Maybe today, these data are not as widely used, but they have taken the place of honor in the history of science.They are studied in all universities in economics, and it suggests that the Paasche index is forgotten.