What is chain base method?

What is chain base method?

In this method, there is no fixed base period; the year immediately preceding the one for which the price index has to be calculated is assumed as the base year. Thus, for the year 1994 the base year would be 1993, for 1993 it would be 1992, for 1992 it would be 1991, and so on.

Why do we need to have a chain base index?

Advantages of Chain Index Numbers Method In an organization, management usually compares the current period with the period immediately preceding it rather than any other period in the past. In this method, the base year changes every year and thus it becomes more useful to the management.

What is fixed based index number?

An index number for which the base period for the calculations is selected and remains unchanged during the lifetime of the index.

How do you find base index number?

The Laspeyres Index is calculated by working out the cost of a group of commodities at current prices, dividing this by the cost of the same group of commodities at base period prices, and then multiplying by 100. This means that the base period index number is always 100.

How do you calculate chain index?

In the chain-linking method, the chain index is calculated by multiplying the link indices of two consecutive periods in series, and there are two types of periods to link (linking points).

How base year is calculated?

In the calculation of an index the base year is the year with which the values from other years are compared. The index value of the base year is conventionally set to equal 100. Generally, indices in short-term statistics (STS) are calculated on a monthly or quarterly basis.

What is the difference between base year and reference year?

There is an important conceptual difference between base year and reference year. Any year can be assigned as reference year without necessitating a change of weights (in price and volume series), but the weights used in a series are always those of the base year.

How to find the chain base index numbers?

(1) The figures are to be expressed as the percentage of the preceding year to get link relatives. (2) Chain index is obtained by the formula : Example 8: From the following data find the index numbers by taking (1) 2005 as base (ii) by chain base method.

Why do we change the chain index number every year?

In this method, the base year changes every year and thus it becomes more useful to the management. Under this method, if the data for any one of the year is not available then we cannot compute the chain index number for the subsequent period.

How are link relatives expressed in chain index numbers?

Thus, in such a situation changing the base period is more appropriate. Chain Index Numbers method is one such method and we shall discuss it now in detail. Under this method, firstly we express the figures for each year as a percentage of the preceding year. These are known as Link Relatives.

What is the base year for the chain base method?

Chain Base Method In this method, there is no fixed base period; the year immediately preceding the one for which the price index has to be calculated is assumed as the base year. Thus, for the year 1994 the base year would be 1993, for 1993 it would be 1992, for 1992 it would be 1991, and so on.