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Imputation and Price Indexes: Theory and Evidence from the International Price Program

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  • Robert C. Feenstra
  • Erwin W. Diewert

Abstract

The goal of this paper is to theoretically and empirically demonstrate the consequences of different imputation methods, using recent data from the International Price Program. We suppose that prices are missing due to random or erratic reporting. We consider three different imputation methods: carry-forward, which just assumes that the missing price is the same as in the previous period; cell-mean, which imputes the missing price using either the short-term or long-term index for related commodities; and linear interpolation, which uses the last and next observations for the item to linearly interpolate. Certain hybrid techniques, combining either carry-forward or cell-mean with linear interpolation, are also considered. Our conclusions are: (1) Some imputation is better than no imputation; (2) the short term cell-mean introduces some “noise” into the price index: (3) linear interpolation results in less fluctuation of prices than the true series: (4) combining either carry-forward or cell-mean with linear interpolation gives similar results.

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Paper provided by California Davis - Department of Economics in its series Department of Economics with number 00-12.

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Handle: RePEc:fth:caldec:00-12

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Postal: University of California Davis - Department of Economics. One Shields Ave., California 95616-8578
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  1. Stephen G. Cecchetti, 1996. "Measuring Short-Run Inflation for Central Bankers," NBER Working Papers 5786, National Bureau of Economic Research, Inc.
  2. Wynne, Mark A., 1999. "Core inflation: a review of some conceptual issues," Working Paper Series, European Central Bank 0005, European Central Bank.
  3. Michael F. Bryan & Stephen G. Cecchetti, 1994. "Measuring Core Inflation," NBER Chapters, in: Monetary Policy, pages 195-219 National Bureau of Economic Research, Inc.
  4. Diewert, W. Erwin, 1999. "Index Number Approaches To Seasonal Adjustment," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 3(01), pages 48-68, March.
  5. repec:cup:macdyn:v:2:y:1998:i:4:p:456-71 is not listed on IDEAS
  6. Michael F. Bryan & Stephen G. Cecchetti, 1993. "The consumer price index as a measure of inflation," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 15-24.
  7. Clements, Kenneth W & Izan, H Y, 1987. "The Measurement of Inflation: A Stochastic Approach," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 5(3), pages 339-50, July.
  8. Diewert, W. Erwin, 1998. "High Inflation, Seasonal Commodities, And Annual Index Numbers," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 2(04), pages 456-471, December.
  9. Paul A. Armknecht & Fenella Maitland-Smith, 1999. "Price Imputation and Other Techniques for Dealing with Missing Observations, Seasonality and Quality Change in Price Indices," IMF Working Papers 99/78, International Monetary Fund.
  10. repec:cup:macdyn:v:3:y:1999:i:1:p:48-68 is not listed on IDEAS
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Cited by:
  1. Emi Nakamura & Jón Steinsson, 2009. "Lost in Transit: Product Replacement Bias and Pricing to Market," NBER Working Papers 15359, National Bureau of Economic Research, Inc.

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