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Comparing the Edgeworth–Marshall index and the Fisher index for the system of national accounts

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  • Kam Yu

    (Lakehead University)

Abstract

National accountants in the U.S. and Canada have switched to a chained Fisher quantity index. This creates some controversies because the Fisher index is not additive. Some authors have proposed the use of the additive Edgeworth–Marshall (ME) index instead. This article compares the Fisher quantity index with the ME index using the test approach and economic approach. Both indices have strong economic justification for their uses. Shortcomings of the ME index include failing the factor reversal test and potentially leading to negative values of constant dollar outputs in some sectors. The advantage of the Fisher index is that the price index and the corresponding quantity index use the same formula. A new theorem shows that additivity and factor reversal are mutually exclusive. Based on our findings we recommend the continual use of the Fisher index.

Suggested Citation

  • Kam Yu, 2023. "Comparing the Edgeworth–Marshall index and the Fisher index for the system of national accounts," SN Business & Economics, Springer, vol. 3(1), pages 1-12, January.
    • Handle: RePEc:spr:snbeco:v:3:y:2023:i:1:d:10.1007_s43546-022-00413-0
    DOI: 10.1007/s43546-022-00413-0
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    References listed on IDEAS

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    More about this item

    Keywords

    Quantity index; GDP deflator; Additivity;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation

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