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Post-Laspeyres

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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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Keywords: Prices; arithmetic; expenditure; equation; survey; expenditure shares; statistics; expenditures; correlation; covariance; equations; logarithms; expenditure survey; functional forms; expenditure share; logarithm; econometrics; annual expenditures; sample sizes; expenditure survey data; standard errors; expenditure data; expenditure information; standard deviation; correlations;

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References

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  1. 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, University of Chicago Press, vol. 109(2), pages 355-374, April.
  2. Silver, Mick & Heravi, Saeed, 2007. "Why elementary price index number formulas differ: Evidence on price dispersion," Journal of Econometrics, Elsevier, Elsevier, vol. 140(2), pages 874-883, October.
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Cited by:
  1. Mick Silver, 2012. "Why House Price Indexes Differ," IMF Working Papers 12/125, International Monetary Fund.

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