Paaschevísitala
Paaschevísitala, or the Paasche price index, is a method used to measure changes in the overall price level of a set of goods across time, using the quantities consumed in the current period as weights. It is named after the German economist Friedrich Paasche and is commonly employed in national accounts and price analyses as an alternative to the Laspeyres index.
The Paasche price index for a base period 0 to a later period t is defined as
P_P(0,t) = [sum over i of p_i,t · q_i,t] / [sum over i of p_i,0 · q_i,t],
where p_i,t is the price of good i in period t and q_i,t is the quantity of
By comparison, the Laspeyres price index uses base-period quantities as weights:
L(0,t) = [sum over i of p_i,t · q_i,0] / [sum over i of p_i,0 · q_i,0].
Differences and interpretation
- The Paasche index uses current-period quantities, while the Laspeyres index uses base-period quantities.
- The Paasche index tends to reflect substitution effects as consumers shift toward cheaper goods in the
- Both indices are subject to data limitations and can be biased if the basket of goods changes
Consider two goods with base prices p_A0=2, p_B0=1 and base quantities q_A0=1, q_B0=1. In period t, prices