The Measurement of Macroeconomic Price Level Changes

Abstract: Textbooks of macroeconomics regularly remind their readers that they should not interpret the macroeconomic price variable as some sort of average price. Instead it represents some price index indicating the average of the individual items’ price changes between the period considered and some base period. The present study develops the family of generalised unit value indices which, contrary to text-book recommendations, applies the notion of an average price. It relates the average price of the period considered to that of the base period. The study also provides an axiomatic comparison to the traditional price indices (e.g., Fisher index).