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What Is The Indexation Definition?

October 19, 2023
Bill Kimball

Indexation is a technique to adjust income payments by means of a price index, in order to maintain the purchasing power of the public after inflation, while deindexation is the unwinding of indexation. An individual’s earnings are always indexed to the average wage level two years prior to the year of first eligibility.


The Thomson Scientific databases have held an outstanding position among bibliographic databases. Weighting by the square root of Equity Earnings (EqE1/2) can be thought of as being halfway between pure Equity Earnings weighting and equal weighting . Therefore, the input and output prices are adjusted to keep the same profit margin. Second, there’s not only less Russian pipe capacity but long-term contracts with Russia are less flexible, after buyers exchanged upward flexibility for spot indexation.

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Fama–French factor portfolios, for instance, while typically not viewed as PMF, are in fact rules-based factor portfolios. However, these were never meant to be investable portfolios, their long-short construct being difficult to scale. By using indexation, you can adjust an investment’s purchase price to reflect the impact of inflation more accurately. This carries over into tax liability because a higher purchase price leads to lower profits and lower taxes.

What is the maximum Ltcg tax free in India?

The exemption limit is Rs. 3,00,000 for resident individual of the age of 60 years or above but below 80 years. The exemption limit is Rs. 2,50,000 for resident individual of the age below 60 years.

Of wages and other nominal variables; removing the indexation arrangements was usually part of the successful stabilization programs. These example sentences are selected automatically from various online news sources to reflect current usage of the word ‘indexation.’ Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. That is a way of finessing the indexation of pensions to past inflation, for which the government will lack the money. Contracts got shorter, oil indexation fell from 16%, near oil parity, to below 11% in recent years, and buyers’ portfolios took on a higher proportion of spot LNG. In recent years Brazil, Chile, Israel, and Mexico have implemented successful inflation fighting campaigns by implementing the deindexation of wages (Lefort and Schmidt-Hebbel, 2002).


In tilted portfolios, for instance, the greater the amount of stocks screened or the more aggressively the weighting scheme departs from cap weighting, the higher the relative risk , the higher the turnover, the lower the liquidity and so forth. A commonly studied indexation scheme is one where nonreoptimized prices increase mechanically at a rate proportional to the economy-wide lagged rate of inflation. To get maximum indexation benefit on debt funds, extend the holding period. Investors will experience a higher reduction in long-term capital gains tax. Insurance companies often include clauses for clients with terms for indexation, promising pay-outs adjusted for inflation. Indexation can not only play its role in determining just the price index of an asset or good but also as what the consumer price index is and what is the confidence level index among both business and consumer.

Do I pay taxes on mutual funds every year?

Do I have to pay taxes on mutual fund earnings? Generally, yes, taxes must be paid on mutual fund earnings, also referred to as gains. Whenever you profit from the sale or exchange of mutual fund shares in a taxable investment account, you may be subject to capital gains tax on the transaction.

Thus, it is challenging to clearly observe the deindexation of a currency. When a government decides to index wages of government employees to inflation it is to transfer the risk of inflation away from government workers onto the government. Such a policy is to attempt to reduce inflationary expectation and in turn inflation when it is rising rapidly.

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Several operators adjust for growth indirectly by including as many small companies as possible. All evidence manifestly points towards higher average growth in smaller companies while bigger companies tend to revert to the mean. Apart from price indexation is also used to calculate the confidence level among the business and the consumers. It can be used by businesses to remove wage disputes among employees as it comes into play for benchmarking wages too. It comes into use to adjust inflation or living cost or prices among various geographical regions as a whole. It is a very important method that every government or firms use for calculation of the value of assets or goods using inflation as a factor.

Protecting one of the parties from the risk of inflation means that the price risk must be shifted to another party. For example, if state pensions are adjusted for inflation, the price risk is passed from the pensioners to the taxpayers. Indexation has been very important in high-inflation environments, and was known as monetary correction “correção monetária” in Brazil from 1964 to 1994.

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Assess the impact on the terminal value of the portfolio if the investor has a target maturity of nine years and requires a sum of £2 172 at the end of this period. Show how a combined portfolio of both bonds will immunise the investor’s requirement more accurately than a holding in just one of the bonds. Is essentially a structured portfolio strategy, but has elements of both active and passive approaches included in it. The result is robust to controlling for the presence of a peg in a standard monetary equation, which indicates that the benign effect of the peg may work through the anchoring of expectations rather than through the imposition of monetary discipline. However, the direction of causality and, more importantly, the duration of the effect are more controversial. Emphasise that Elsevier, the publisher that owns Scopus, has refused Google Scholar permission to search its texts.


When it comes to indexation for companies or governments, it’s often used to adjust wages. Without regular wage increases, employees would experience significant wage cuts due to inflation. In addition to inflation, indexation may be applied to account for differences in price across geographic regions or the cost of living.

The automatic adjustment of wages, taxes, pension benefits, interest rates, etc., according to changes in the cost of living or another economic indicator, especially to compensate for inflation. Wealth weighting were compelling because they were intuitive and did not employ a black box algorithm such as optimization, which meant security weights could be directly tied to the securities’ observable characteristics. Subsequent factor-based approaches could also be constructed in a similar manner; these can be viewed as “heuristic” or rule-based methods which use a set of rules to specify security weights as a function of the factor characteristics.


Firm-wide earnings would overweight B relative to market cap (50% vs 40%), whereas CROCI equity earnings underweight B (33% vs 40%), in line with its higher Ec P/E ratio. It is a key measure used by government and business firms to adjust prices, considering the very important factor known as inflation. It is also widely popular among investors who prefer to stay in a win-win situation rather than shelling huge tax to the tax authority. Resolving these errors quickly will ensure that all of your target pages are crawled and indexed the next time search engines crawl your site.

Adjusting for inflation using indexation allows an investor to reduce long-term capital gains, bringing down taxable income. As the market experiences fluctuations over time, returns may not be what the investor expects. To compensate, indexation regulates the balance between investment and changes to the cost of living. The automatic adjustment of an economic variable, such as wages, taxes, or pension benefits, to a cost-of-living index, so that the variable rises or falls in accordance with the rate of inflation. Capital gain is the return incurred by selling an asset, whether it’s tangible or intangible.

But, the Asian countries have a vested economic interest in keeping US demand for their exports high. Often the pegging conducted by central banks is pretty discrete and not disclosed in any formal policy statement. A central bank will maintain an exchange rate within a deemed acceptable range instead of at a specific level. Over time, the acceptable range may broaden or narrow depending on such a country’s economy overall reliance on exports to fuel growth.

Thus, for a person retiring at age 62 in 2022, the person’s earnings would be indexed to the average wage index for 2020 (55,628.60). Earnings in a year before 2020 would be multiplied by the ratio of 55,628.60 to the average wage index for that year; earnings in 2020 or later would be taken at face value.

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The last one is typically indexed to a foreign currency, mainly the US dollar. A person’s indexed earnings are used to calculate an average indexed monthly earnings amount. We use this AIME amount to compute the person’s primary insurance amount. In the old version of Google Search Console, you can actually slow or customize the speed of your crawl rates if Google’s spiders are negatively impacting your site. Once a site is live or has advanced past a certain age, most webmasters don’t really concern themselves with their crawl budget anymore. Here are 11 tips and tricks to ensure that your website gets crawled and indexed properly – and help your webpages rank higher in search. We have checked the sensitivity of the results to assumptions about indexation, wage development and institutional rules.

  • It plays a major role in considering the inflation factor while computing the price of goods.
  • The package GridInterpolations deals with multivariate interpolations on a rectilinear grid.
  • Therefore, the input and output prices are adjusted to keep the same profit margin.
  • The combined evidence appears contradictory to the implications of nominal wage indexation during recessions.
  • Over time, the acceptable range may broaden or narrow depending on such a country’s economy overall reliance on exports to fuel growth.

Real occupational pension rights are not reduced in the optimistic scenario, where full indexation takes place. DisclaimerAll content on this website, including dictionary, thesaurus, literature, geography, and other reference data is for informational purposes only. This information should not be considered complete, up to date, and is not intended to be used in place of a visit, consultation, or advice of a legal, medical, or any other professional. However, although they are worth mentioning, their focus is much more technical and of less use to the usual needs of an economists. The package GridInterpolations deals with multivariate interpolations on a rectilinear grid. A second package, ApproXD, deals with the approximation of function of dimension X. But this will be more discussed when we deal with function approximation.

The only thing which it requires is an accurate calculation of the price or value of assets and choice of a proper base year. It is not every person’s job; it is only conducted by authorities who are registered to do so.

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Indexation, in fiscal policy, a means of offsetting the effect of inflation or deflation on social security payments and taxes by measuring the “real value” of money from a fixed point of reference, usually a price index. Without indexing, recipients of social security benefits, for example, would suffer during times of inflation if their benefits remained at a fixed rate. Indexation in this case would also apply to taxes levied to support the program. Indexation is used in some countries to offset “bracket creep,” which occurs in any progressive tax (q.v.) system when inflation pushes taxpayers into higher income tax brackets. Indexation may also refer to the linking of wage rates and financial instruments to a price index. But if the nominal figures in are deflated at the rate of inflation in way discussed above, they do not produce the same cash flow as . This is because although the revenues and opex figures in are real, the debt-service figures are nominal, and therefore have to be deflated to produce a real cash flow.


The indexation of government debt to inflation is related to transferring the inflation risk from depositors to the government in an attempt to reduce inflation. Some governments have ultimately subjected their short-term debt instruments to deindexation so their central bank could regain control of short-term interest rates from a monetary policy standpoint and be in a better position to fight inflation. Another objective of indexation, for certain governments with already low inflation rate, is to reduce their borrowing cost by paying lower interest rates to depositors in exchange for assuming inflation risk. Both the UK and the US have issued inflation indexed government bonds to reduce their borrowing costs. When governments such as the UK and the US issue both inflation indexed bonds and regular nominal bonds, it gives them precise information on inflation expectation by observing the difference in yields between the two types of bonds. Robert Shiller has done extensive research on all mentioned aspects of government bond indexation.

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For publishers it is very easy to include publications in Google Scholar, as all they need do is send the abstract of a publication. Although the tool does gather the number of citations received by articles, it fails to include some information, for example the number of documents or journals it includes or its time coverage. Finally, it is important to bear in mind that Google Scholar is still a beta version, and consequently a number of improvements will be made before launching its final version. In effect, 100% inflation indexation is a way of ‘back-ending’ Contract Payments and is generally not desirable (cf. With the largest earnings will remain large, whilst newcomers will remain small.