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Post-Laspeyres: The Case for a New Formula for Compiling Consumer Price Indexes

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Author Info

  • Paul A. Armknecht
  • Mick Silver

Abstract

Consumer price indexes (CPIs) are compiled at the higher (weighted) level using Laspeyres-type arithmetic averages. This paper questions the suitability of such formulas and considers two counterpart alternatives that use geometric averaging, the Geometric Young and the (price-updated) Geometric Lowe. The paper provides a formal decomposition and understanding of the differences between the two. Empirical results are provided using United States CPI data. The findings lead to an advocacy of variants of a hybrid formula suggested by Lent and Dorfman (2009) that substantially reduces bias from Laspeyres-type indexes.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/105.

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Length: 28
Date of creation: 01 Apr 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/105

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Related research

Keywords: Prices;

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References

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  1. Silver, Mick & Heravi, Saeed, 2007. "Why elementary price index number formulas differ: Evidence on price dispersion," Journal of Econometrics, Elsevier, vol. 140(2), pages 874-883, October.
  2. Mick Silver & Christos Ioannidis, 2001. "Intercountry Differences in the Relationship between Relative Price Variability and Average Prices," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 355-374, April.
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Cited by:
  1. Mick Silver, 2012. "Why House Price Indexes Differ: Measurement and Analysis," IMF Working Papers 12/125, International Monetary Fund.

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