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Auditing the Producer Price Index: Micro Evidence from Prescription Pharamceutical Preparations

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

Abstract

From January 1984 through December 1989, the Bureau of Labor Statistics (BLS) price index for prescription pharmaceuticals grew at 9.09 percent per year. Using BLS-type Laspeyres index procedures with monthly price and quantity data on all prescription pharmaceuticals sold by four U.S. pharmaceutical manufacturers accounting for 24 percent of industry domestic sales, we find that the four-company index increases at 6.68 percent per year. When we employ a Divisia price index with smoothed weights incorporating new goods, the index grows 6.03 percent per year. Why does the BLS index grow 50 percent more rapidly than the Divisia index? That mystery is the focal point of our article.

Suggested Citation

  • Berndt, Ernst R & Griliches, Zvi & Rosett, Joshua G, 1993. "Auditing the Producer Price Index: Micro Evidence from Prescription Pharamceutical Preparations," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(3), pages 251-264, July.
    • Handle: RePEc:bes:jnlbes:v:11:y:1993:i:3:p:251-64
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    References listed on IDEAS

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    1. Hulten, Charles R, 1973. "Divisia Index Numbers," Econometrica, Econometric Society, vol. 41(6), pages 1017-1025, November.
    2. Ernst R. Berndt & Zvi Griliches & Joshua G. Rosett, 1990. "On the Accuracy of Producer Price Indexes for Pharmaceutical Preparations: An Audit Based on Detailed Firm-Specific Data," NBER Working Papers 3490, National Bureau of Economic Research, Inc.
    3. George J. Stigler & James K. Kindahl, 1970. "The Behavior of Industrial Prices," NBER Books, National Bureau of Economic Research, Inc, number stig70-1.
    4. Ernst R. Berndt & Zvi Griliches, 1993. "Price Indexes for Microcomputers: An Exploratory Study," NBER Chapters, in: Price Measurements and Their Uses, National Bureau of Economic Research, Inc.
    5. W. Erwin Diewert, 1988. "The Early History of Price Index Research," NBER Working Papers 2713, National Bureau of Economic Research, Inc.
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