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Index Number Issues in the Consumer Price Index

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  • W. Erwin Diewert

Abstract

This paper addresses the following issues: what is an appropriate theoretical consumer price index that statistical agencies should attempt to measure; what are some of the possible sources of biases between the fixed base Laspeyres price index that statistical agencies produce and the theoretical cost-of-living index; and what factors will make the biases larger or smaller and how will the biases change as the general inflation rate changes? This paper addresses all of the issues mentioned above and discusses what statistical agencies can do to reduce the biases.

Suggested Citation

  • W. Erwin Diewert, 1998. "Index Number Issues in the Consumer Price Index," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 47-58, Winter.
    • Handle: RePEc:aea:jecper:v:12:y:1998:i:1:p:47-58
    Note: DOI: 10.1257/jep.12.1.47
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.12.1.47
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    References listed on IDEAS

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    1. repec:ucp:bknber:9780226304557 is not listed on IDEAS
    2. Lloyd, P J, 1975. "Substitution Effects and Biases in Nontrue Price Indices," American Economic Review, American Economic Association, vol. 65(3), pages 301-313, June.
    3. Hausman, Jerry, 1999. "Cellular Telephone, New Products, and the CPI," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(2), pages 188-194, April.
    4. Jerry A. Hausman, 1996. "Valuation of New Goods under Perfect and Imperfect Competition," NBER Chapters, in: The Economics of New Goods, pages 207-248, National Bureau of Economic Research, Inc.
    5. Robert J. Gordon, 1990. "The Measurement of Durable Goods Prices," NBER Books, National Bureau of Economic Research, Inc, number gord90-1, March.
    6. W. Erwin Diewert, 1995. "Axiomatic and Economic Approaches to Elementary Price Indexes," NBER Working Papers 5104, National Bureau of Economic Research, Inc.
    7. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
    8. Diewert, W Erwin, 1978. "Superlative Index Numbers and Consistency in Aggregation," Econometrica, Econometric Society, vol. 46(4), pages 883-900, July.
    9. Timothy F. Bresnahan & Robert J. Gordon, 1996. "The Economics of New Goods," NBER Books, National Bureau of Economic Research, Inc, number bres96-1, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation

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