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International Monetary Fund

Abstract

1.0 A price index number is a summary measure of the proportionate or percentage change in a set of prices over time. Export and import price indices (XMPIs) measure the overall change in the price component of transactions in goods and services between the residents of an economic territory and residents of the rest of the world. The prices of different goods and services all do not change at the same rate. A price index thus summarizes their movement by averaging over them. A price index assumes a value of unity, or 100, in some reference period. The value of the index for other periods of time provides the average proportionate or percentage change in price from the reference period.

International Monetary Fund

Abstract

10.1 This chapter provides a general description with examples of the ways in which export and import price indices (XMPIs) are calculated in practice. The methods used in different countries are not exactly the same, but they have much in common.

International Monetary Fund

Abstract

11.1 This chapter provides examples of how different national statistical agencies handle different commodities and explains some pricing issues important in international trade. The emphasis is on those areas in which price measurement generally is regarded as difficult; however, examples of routine commodity areas are included. It should be kept in mind that the presentation of these methods is not intended to convey them as “best practices.” In fact, it is recognized that in some cases a country’s circumstances likely will necessitate deviations from these methodologies. To underscore this point the discussion of each issue includes mention of outstanding issues—issues that point to problems in the described procedures.

International Monetary Fund

Abstract

12.1 A number of sources of error and bias have been discussed in the preceding chapters and will be discussed again in subsequent chapters. The purpose of this chapter is to briefly summarize such sources to provide a readily accessible overview. Both conceptual and practical issues are covered. To be aware of the limitations of export and import price indices (XMPIs), it is necessary to consider what data are required, how they are to be collected, and how they are to be used to obtain overall summary measures of price changes. The production of XMPIs is not a trivial task, and any program of improvement must match the estimated cost of a potential improvement in accuracy against the likely gain. In some instances, one may have to take into account the user requirements necessary to meet specific needs or engender more faith in the index, in spite of the relatively limited gains in accuracy matched against their cost.

International Monetary Fund

Abstract

13.1 Export and import price indices (XMPIs) are used for many purposes by government, business, labor, universities, and other kinds of organizations, as well as by members of the general public. Accuracy and reliability are paramount for a statistic as important as XMPIs. Whether XMPIs are used as a deflator of national account values, an indicator of inflation, in escalation of contracts, in assessing developments in the global economy such as exchange rate fluctuations, or in other economic analyses, the process of producing XMPIs needs to be carefully planned and executed.

International Monetary Fund

Abstract

14.1 As discussed in Chapter 3, export and import price indices (XMPIs) are an important statistical series for monitoring inflation and assisting in the measurement of GDP volume series. It follows, therefore, that the XMPIs must be published, and otherwise disseminated, according to the policies, codes of practice, and standards set for such data.

International Monetary Fund

Abstract

15.1 This chapter is about value aggregates and their associated price indices in an integrated system of economic statistics. To understand why value aggregates are important, we foreshadow the next chapter, which addresses concepts for decomposing value aggregates into price and volume components. Chapter 16 begins with defining a value aggregate in equation (16.1) as the sum of the products of the prices and quantities of goods and services. Equations (16.2) and (16.3) characterize a price index as the factor, given the relative change in the value aggregate, arising from changes in prices. Not surprisingly, then, to define a price index, it is first necessary to define precisely the associated value aggregate.

International Monetary Fund

Abstract

The answer to the question what is the Mean of a given set of magnitudes cannot in general be found, unless there is given also the object for the sake of which a mean value is required. There are as many kinds of average as there are purposes; and we may almost say in the matter of prices as many purposes as writers. Hence much vain controversy between persons who are literally at cross purposes. (Edgeworth, 1888, p. 347)

International Monetary Fund

Abstract

17.1 As Chapter 16 demonstrated, it is useful to be able to evaluate various index number formulas that have been proposed in terms of their properties. If a formula turns out to have rather undesirable properties, then doubt is cast on its suitability as a target index that could be used by a statistical agency. Looking at the mathematical properties of index number formulas leads to the test or axiomatic approach to index number theory. In this approach, desirable properties for an index number formula are proposed; then it is determined whether any formula is consistent with these properties or tests. An ideal outcome is that the proposed tests are desirable and completely determine the functional form for the formula.

International Monetary Fund

Abstract

18.1 The economic approach differs from the fixed-basket, axiomatic, and stochastic approaches outlined in Chapters 16 and 17 in an important respect: Quantities are no longer assumed to be independent of prices. Consider a price index for the output produced by establishments. If, for example, it is assumed that the establishments behave as (export) revenue maximizers, it follows that they would switch production to commodities with higher relative price changes. This behavioral assumption about the firm allows something to be said about what a “true” index number formula should be and the suitability of different index number formulas as approximations to it. For example, the Laspeyres price index uses fixed-period (export) revenue shares to weight its price relatives and ignores the substitution of production toward products with higher relative price changes. The Laspeyres price index will thus understate aggregate price changes—be biased downward against its true index. The Paasche price index uses fixed current-period weights and will thus overstate aggregate price changes—be biased upward against its true index.