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Elementary Index Bias: Evidence for the Euro Area from a Large Scanner Dataset

Author

Listed:
  • Gábor-Tóth Enikő

    (Deutsche Bundesbank, Frankfurt, Germany)

  • Vermeulen Philip

    (Directorate General Research, Monetary Policy Research Division, European Central Bank, Frankfurt, Germany)

Abstract

We provide evidence on the effect of elementary index choice on inflation measurement in the euro area. Using scanner data for 15,844 individual items from 42 product categories and 10 euro area countries, we compute product category level elementary price indexes using eight different elementary index formulas. Measured inflation outcomes of the different index formulas are compared with the Fisher ideal index to quantify elementary index bias. We have three main findings. First, elementary index bias is quite variable across product categories, countries and index formulas. Second, a comparison of elementary index formulas with and without expenditure weights shows that a shift from price only indexes to expenditure weighted indexes would entail at the product level multiple percentage points differences in measured price changes. And finally, we show that elementary index bias is quantitatively more important than upper level substitution bias.

Suggested Citation

  • Gábor-Tóth Enikő & Vermeulen Philip, 2019. "Elementary Index Bias: Evidence for the Euro Area from a Large Scanner Dataset," German Economic Review, De Gruyter, vol. 20(4), pages 618-656, December.
    • Handle: RePEc:bpj:germec:v:20:y:2019:i:4:p:e618-e656
    DOI: 10.1111/geer.12182
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    Cited by:

    1. Menz, Jan-Oliver & Wieland, Elisabeth & Mehrhoff, Jens, 2022. "Estimating the impact of quality adjustment on consumer price inflation," Discussion Papers 49/2022, Deutsche Bundesbank.
    2. Messner, Teresa & Rumler, Fabio, 2024. "Inflation heterogeneity across Austrian households. Evidence from household scanner data," Working Paper Series 2894, European Central Bank.
    3. Herzberg, Julika & Knetsch, Thomas A. & Schwind, Patrick & Weinand, Sebastian, 2021. "Quantifying bias and inaccuracy of upper-level aggregation in HICPs for Germany and the euro area," Discussion Papers 06/2021, Deutsche Bundesbank.

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