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Rounding Error: A Distorting Influence on Index Data

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  • Kozicki, Sharon
  • Hoffman, Barak

Abstract

Rounding error is an important source of measurement error that is common in index data. The problem can be traced to rounding that occurs to limit the number of digits after the decimal place to be reported in rebased index data. Rounding error introduces distortions that affect variance properties, alter the lag distributions of time series models, and cause a systematic bias in estimated coefficients. For instance, spuriously choppy inflation rates are obtained when constructed using the official CPI, rebased with 1982-84 = 100. Fortunately, the distortions can be generally avoided by using versions of data that have greater precision.

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 36 (2004)
Issue (Month): 3 (June)
Pages: 319-38

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Handle: RePEc:mcb:jmoncb:v:36:y:2004:i:3:p:319-38

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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Cited by:
  1. Marco Ercolani, 2010. "Transitional price rises with the adoption of the euro: aggregate and disaggregate sector evidence," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 13(2), pages 137-157.
  2. Todd E. Clark & Michael W. McCracken, 2006. "Averaging forecasts from VARs with uncertain instabilities," Research Working Paper RWP 06-12, Federal Reserve Bank of Kansas City.
  3. Nelson, Edward, 2008. "Ireland and Switzerland: The jagged edges of the Great Inflation," European Economic Review, Elsevier, vol. 52(4), pages 700-732, May.
  4. Baoxue Zhang & Tianqing Liu & Z. Bai, 2010. "Analysis of rounded data from dependent sequences," Annals of the Institute of Statistical Mathematics, Springer, vol. 62(6), pages 1143-1173, December.
  5. Rossi, Barbara & Sekhposyan, Tatevik, 2010. "Have economic models' forecasting performance for US output growth and inflation changed over time, and when?," International Journal of Forecasting, Elsevier, vol. 26(4), pages 808-835, October.
  6. Jeremy M. Piger & Robert H. Rasche, 2006. "Inflation: do expectations trump the gap?," Working Papers 2006-013, Federal Reserve Bank of St. Louis.
  7. Sharon Kozicki & P.A. Tinsley, 2006. "Survey-Based Estimates of the Term Structure of Expected U.S. Inflation," Working Papers 06-46, Bank of Canada.

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