Truman L. Kelly has suggested the following formula for constructing index number:
Here weights are the quantities which may refer to some period, not necessarily the base year or current year. Thus the average quantity of two or more years may be used as weights. If in the Kelly’s formula the average of the quantities of two years is used as weights, the formula becomes:
Similarly, the average of the quantities of three or more years can be used as weights. This method is known as fixed weighted aggregative index and is currently in great favour n the construction of index number series. An important advantages of this formula is that like Laspeyres index it does not demand yearly changes in the weights. Moreover, the base period can be changes without necessitating corresponding change in the weights. This is very important because the construction of appropriate quantity weights for a general propose index usually requires a considerable amount of work.
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