Extending the Stochastic Approach to Paasches Price Index Numbers

In recent times, the stochastic approach has received enormous attention to estimate the rate of inflation. The attraction of this approach is to provide not only the estimate of inflation rate, but also its standard error. In this paper, we extend the stochastic approach to derive the Paasches price index number and its standard error. We present an illustration to Laspeyres index number using consumer price data of Pakistan covering the period from July 2002 to June 201