The use of index numbers

Economy is the main affair of the countries. When the economy is strong in a country, then that country is powerful and enforces the others. In order to compare the wealth of the countries, we need some indicators. Therefore they measure some information and prepare indicators showing various information about the country. Among these indicators, the price statistics and indices are very important all over the world. They play a role to decide whether a country is developed or not. In order to obtain these index numbers, various formulas and approaches have been developed during last two centuries. In this work, we will try to explain these index formulas and approaches. We will examine their advantages and disadvantages. Also, the aggregation methods of price indices and the estimation of inflation in our country (Türkiye) are explained. In stochastic approach, index numbers are estimated using the estimators of parameters of special regression models. The most important thing is that the standard errors of the index numbers are obtained by this approach. Standard errors reflect the reliability and the precision of an index number which is measuring the price change of a basket of goods and services. At the end, some sample prices are applied to calculate Laspeyres and Paasche indices. Besides, an estimation of inflation rate using special regression models and using stochastic approach the confidence interval for the inflation are calculated.