AbstractConsumer 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 InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 12/105.
Date of creation: 01 Apr 2012
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-15 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- 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.
- Mick Silver, 2012. "Why House Price Indexes Differ," IMF Working Papers 12/125, International Monetary Fund.
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