Standard errors for the Laspeyres index number with autocorrelated error models

This paper deals with the stochastic approach to Laspeyres price index number with the assumption of serial correlation of orders 1 and 2. The first round of estimation provides the estimates of Laspeyres index numbers in the presence of serial correlation assuming that variance is independent of time. In the second round of estimation, we use the weighted least square approach to derive the standard errors of Laspeyres index number assuming variance is dependent on time. These standard errors are linked to the variability of relative prices and are simple to evaluate. It shows that the larger index numbers are expected to estimate with less degree of precision. The results are illustrated with price data of Pakistan.