Research Discussion Paper – RDP 2018-08 Econometric Perspectives on Economic Measurement

It turns out that price index functions share a basic interpretation; practically all of them measure a change in some average of quality-adjusted prices. The different options are distinguished by their choice of average, their definition of quality, and their stance on what I label ‘equal interest’. This new perspective updates the so-called stochastic approach to choosing index functions. It also offers new avenues to understand and tackle measurement problems. I discuss three examples.