102. Selection of the Base Period

Choosing an appropriate base period is critical. You must use a time period that is “representative” of the prevailing economic life-style. However, determining what is representative is quite subjective and often difficult. Time periods containing wars or major depressions should obviously be avoided.

It is often necessary to change the base period to modernize the index and better reflect current trends and conditions. To shift the base to a different time period, divide the existing index numbers by the index number in the new base period and multiply by 100. Table 9.8 shifts the base period from 1983 to 1985. Each of the index numbers based on 1983 are divided by 118, the index number of 1985. This produces the index numbers with 1985 as the base period.

Table 9.8 – Shifting the Base from 1983 to 1985

Year	Index (1983 = 100)	Index (1985 =100)
1981	89	(89/118)(100) = 75
1982	95	(95/118)(100) = 81
1983	100	(100/118)(100) = 85
1984	118	(110/118)(100) = 93
1985	121	(118/118)(100) = 100
1986	125	(121/118)(100) = 103
1987	131	(125/118)(100) = 106
1988	132	(131/118)(100) = 111
1989	138	(132/118)(100) = 112

If two indexes with different base periods are to be compared, it is advisable to shift the base period of one index to that of the other index. Comparisons are thereby more meaningful. Furthermore, it frequently becomes necessary to combine two indexes with different base periods. This is particularly true if, in conducting a study, we find that our time frame includes the period in which the series was rebased. We must then splice the two series together.

Notice from Table 9.9 that the index for producer prices is given for years 1984 to 1987 with 1975 = 100, and for 1987 to 1990 with the base of 1979 = 100.

Table 9.9 – Splicing Indexes for Producer Prices

Year	Index (1975 = 100)	Index (1979 =100)	Spliced Index (1979 =100)
1984	142	-	98.19
1985	147	-	101.65
1986	153	-	105.80
1987	162	112	112.00
1988	-	114	114.00
1989	-	121	121.00
1990	-	130	130.00

In order to splice, you must have at least one time period (1987 in this case) in which the index number is given for both series. Start at 1986 and work backwards (1985, 1984, etc.). Find the spliced value for 1986 by dividing the 1986 value by the 1987 value in the 1975 series, and multiplying by the 1987 value in the 1979 series.

That is,

The 105.8 is the first value we find for the spliced series. The spliced value for 1985 is found similarly to be

The value for 1984 is

< Предыдущая		Следующая >