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On the Accuracy of Producer Price Indexes for Pharmaceutical Preparations: An Audit Based on Detailed Firm-Specific Data

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  • Ernst R. Berndt
  • Zvi Griliches
  • Joshua G. Rosett

Abstract

This paper reports preliminary results of a detailed audit of one component of the Producer Price Index (PPI), using data from a large muiltproduct company. We compare price indexes constructed in a variety of ways from the universe of products of a large pharmaceutical manufacturer in the US, with price indexes constructed from the particular products of this firm sampled by the BIS, using BIS and alternative index number procedures. A principal finding is that price indexes based on the BIB sample of this firm grew similarly to the published PPI's for SIC 28341, but in contrast, price indexes computed using the universe of products manufactured by the firm grew much more slowly. Although some variations emerge depending on how one undertakes the calculations, our typical finding is that, employing monthly data from January 1984 through December 1989, the BIB sample price index rises at nearly the same rate as the PPI, bet at roughly twice the rate of indexes based on the universe of products shipped by this pharmaceutical firm. We also report results of a preliminary attempt to uncover the source of this disparity, we provide some evidence on the "new goods" problem, and we implement a procedure to mitigate the problem of "drift" associated with the Tornqvist approximation to the Divisia chained index.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3490.

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Date of creation: Oct 1990
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Handle: RePEc:nbr:nberwo:3490

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  1. W. Erwin Diewert, 1988. "The Early History of Price Index Research," NBER Working Papers 2713, National Bureau of Economic Research, Inc.
  2. Diewert, Erwin, 2007. "Index Numbers," Economics working papers diewert-07-01-03-08-17-23, Vancouver School of Economics, revised 31 Jan 2007.
  3. Hulten, Charles R, 1973. "Divisia Index Numbers," Econometrica, Econometric Society, vol. 41(6), pages 1017-25, November.
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Cited by:
  1. Ernst R. Berndt & Zvi Griliches & Joshua G. Rosett, 1992. "Auditing the Producer Price Index: Micro Evidence From Prescription Pharmaceutical Preparations," NBER Working Papers 4009, National Bureau of Economic Research, Inc.
  2. Richard G. Frank & David S. Salkever, 1991. "Pricing, Patent Loss and the Market For Pharmaceuticals," NBER Working Papers 3803, National Bureau of Economic Research, Inc.
  3. Judith K. Hellerstein, 1994. "The Demand for Post-Patent Prescription Pharmaceuticals," NBER Working Papers 4981, National Bureau of Economic Research, Inc.

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