An application of index number theory to interest rates: Evidence from selected post-Soviet countries

In this paper, we use index number theory to decompose changes in total interest rate due to changes in the interest rate component and the weight component. We discuss the optimal calculation of a binary index using axiomatic index number theory. Based on this theory we compare alternative indexes and as a result, we choose the Marshall-Edgeworth index because most axioms are satisfied by this index. Comparing the results of binary periods decomposition, we conclude that the differences are not significant when we apply different indices. For multiple period comparison, we suggest using the chain index because it allows accounting for the weights evolution during the whole period. In addition, we derive a formula that could be useful for explaining the differences between chain and direct indexes when we produce multiple period comparison.

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Year of publication:	2022
Authors:	Poghosyan, Karen ; Poghosyan, Ruben
Published in:	Journal of Central Banking Theory and Practice. - ISSN 2336-9205. - Vol. 11.2022, 2, p. 165-186
Publisher:	Warsaw : Sciendo
Subject:	index number \| interest rate \| chain and direct indexes \| post-Soviet countries

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Type of publication:	Article
Type of publication (narrower categories):	Article
Language:	English
Other identifiers:	10.2478/jcbtp-2022-0018 [DOI] 1815233990 [GVK]
Classification:	C43 - Index Numbers and Aggregation ; E43 - Determination of Interest Rates; Term Structure Interest Rates
Source:	EconStor

Persistent link: https://ebvufind01.dmz1.zbw.eu/10014558494