A Note on Criteria for Price Index Systems

Abstract

When using index numbers, such as price indices, there are different formulae which can be applied, so that the question arises which of them is better than the others for certain purposes. A way to answer this question is to consider so-called index number systems which encompass the price development and computation of indices over a certain period of time, or the price structure of all regional units (countries, regions, etc.) to be compared. The aim then is to determine a price index system which best describes the given observation. This article deals with an attempt made by Pfouts in (1972)²⁾: A geometrical aspect of his criterion is given, and another criterion is suggested.

The authors are indebted to Professor Dr. W. Eichhorn and Professor Dr. R. Henn of Karlsruhe University for stimulating discussions and helpful comments; but the authors alone are responsible for any errors.