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| Laspeyres and Paasche Index× | Fisher Ideal Index× | |
|---|---|---|
| Field | Economics | Economics |
| Family | Process / pipeline | Process / pipeline |
| Year of origin≠ | 1871 | 1922 |
| Originator≠ | Étienne Laspeyres (1871); Hermann Paasche (1874) | Irving Fisher; superlative theory by W. Erwin Diewert |
| Type≠ | Bilateral price and quantity index numbers | Superlative index number for aggregating prices or quantities |
| Seminal source≠ | Diewert, W. E. (1976). Exact and superlative index numbers. Journal of Econometrics, 4(2), 115–145. DOI ↗ | Fisher, I. (1922). The Making of Index Numbers: A Study of Their Varieties, Tests, and Reliability. Boston: Houghton Mifflin. ISBN: 9780678006597 |
| Aliases | Laspeyres Index, Paasche Index, Base-Weighted Index, Current-Weighted Index | Fisher Index, Fisher's Ideal Index, Ideal Index Number, Fisher Price Index |
| Related | 3 | 3 |
| Summary≠ | The Laspeyres and Paasche indices are the two foundational bilateral index numbers used to measure how a basket of prices (or quantities) changes between a base period and a current period. The Laspeyres index weights price changes by base-period quantities — it asks what the original basket costs now relative to then — while the Paasche index weights by current-period quantities, asking what the current basket costs now relative to then. They differ because consumers substitute away from goods whose relative prices rise, and this difference defines the well-known substitution bias: the Laspeyres index tends to overstate, and the Paasche index to understate, the true cost-of-living change, bracketing it between them. | The Fisher ideal index is a superlative index number that aggregates many individual prices or quantities into a single measure of overall change by taking the geometric mean of the Laspeyres (base-weighted) and Paasche (current-weighted) indices. Proposed by Irving Fisher in his 1922 treatise as the 'ideal' formula because it passes a battery of desirable axiomatic tests, it was later shown by W. Erwin Diewert to be exact for a flexible (quadratic) aggregator, giving it both an axiomatic and an economic-theoretic justification. It is the index of choice when a measure must satisfy the time-reversal and factor-reversal tests exactly. |
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