# Weight in IIP Calculation Introduction Selection of weights updating of weights Fixed weight vs. chain index ( In terms of weights updating )

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Weight in IIP Calculation Introduction Selection of weights updating of weights Fixed weight vs. chain index ( In terms of weights updating )

Introduction Weights are to indicate the relative importance of each index component within each level in the case of IIP. Product Group -- products Industry -- product group Over all-- industry In compilation of IIP, weights play an important role to combine and produce aggregate measures at a higher level.

Introduction Panel 1 Period 0Period 1 WeightsQuantityIndexQuantityIndex Product A70150100.0170113.3 Product B30100100.0120120.0 Total 100.0 115.3 Panel 2 Period 0Period 1 WeightsQuantityIndexQuantityIndex Product A50150100.0170113.3 Product B50100100.0120120.0 Total 100.0 116.7

Selection of weights Weights at different level can be obtained from the latest Census and use different data variables as follows : Product level : Value of output / product sales Product Group level : Value of output Industry level : Gross / Net value added

Updating of weights The purpose of updating weights in the compilation of IIP is to reflect the changing structure of the economy so as to compile more accurate information. As in most of the industries replacement of products and changing of product prices occur over time. Consideration : The need to accurately reflect the current relative importance of products, product groups and industries Data availability How flexible is the index type used to compile the IIP (e.g. Laspeyres Vs Paasche or Fisher)

Updating of weights Recommendation: Industry level : annually Product group level : at least every 5 years

Fixed weight vs. chain index ( In terms of weights updating ) Fixed weight index The fixed weight indexes have their weight structure fixed at a particular point in time and used to compute indices over an extended period, usually five years. Thereafter weights at all level are updated to compute a new 5 year series. These 2 year series are then linked to form a time series or the time series is re-calculated based on the new set of weights.

Fixed weight vs. chain index ( In terms of weights updating ) Chain linked index This refers to updating weight and linking two index series together to produce a time series. This approach does not re-calculate the entire historical series whenever the weights are updated but links together the two index series to form a coherent times series. Non-additivity – The annually chained Laspeyres method is additive in the year after the weight reference period but additivity breaks down after the reference period. This should be carefully explained and presented to the users.

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