Syllabus for Price Index Theory

Why are certain index-number formulas used to compute a price index? Answering this question requires a theory of price indices that can be used to evaluate the properties of a price index, and determine if one index number is better than another.

The goal of this module is to provide the theoretical underpinnings of a price index, with a particular focus on motivating the index-number formulas that are used in practice. By the end of the module, an individual should:

  1. Be familiar with the three theoretical approaches to develop a price index.

  2. Know how the three approaches can be used to motivate commonly-used index numbers.

This module is useful for both users and compilers of price indices with a basic understanding of how to construct a price index, and who would like to get a deeper understanding of why particular index-number formulas are used.

This module consists of self-directed readings, along with an assignment. In total, about 10 to 15 hours should be devoted for this module.

Prerequisites: Introduction to Price Indices, at least one intermediate micro-theory course, and at least an introductory course in probability and statistics. An advanced micro-theory course is helpful.

Evaluation for this module is based on an assignment consisting of 20 multiple-choice/true-false questions that draw on material in the course content and readings. Collaboration on the assignment is welcomed, but each person must submit their own unique work. Passing this module requires at least a 65% on the assignment.

Readings for this module come from chapters 15–18 of the PPI manual (ILO et al. 2004b) and/or the CPI manual (ILO et al. 2004a), published by the IMF (freely available on their website), as well as the review of price-index theory by Balk (1995).

Please email one of the course instructors (either Steve Martin or Shaoxiong Wang or Anastasiia Nosach) if you have any questions, or need help with any of the course material or assignment.