Index Numbers

Index numbers are used to aggregate detailed information on prices and quantities into scalar measures of price and quantity levels or their growth. The paper reviews four main approaches to bilateral index number theory where two price and quantity vectors are to be aggregated: fixed basket and average of fixed baskets, stochastic, test or axiomatic and economic approaches. The paper also considers multilateral index number theory where it is necessary to construct price and quantity aggregates for more than two value aggregates. A final section notes some of the recent literature on related aspects of index number theory the construction of indexes when there is seasonality in the underlying data, sources of bias in consumer price indexes, the use of index numbers in measuring productivity, the problem of quality change and index number theory that is based on taking differences rather than ratios.