IDEAS home Printed from https://ideas.repec.org/a/bla/jecsur/v10y1996i1p55-89.html
   My bibliography  Save this article

A Survey of Measurement Biases in Price Indexes

Author

Listed:
  • Wynne, Mark A
  • Sigalla, Fiona D

Abstract

This paper reviews the literature on measurement error in the major US price indexes—the Consumer Price Index (CPI), the Producer Price Index (RPI), and the Gross Domestic Product (GDP) deflators. We take as our point of departure Triplett's, 1975, survey and focus on the studies of measurement error that have appeared since then. We review the problems of substitution bias, quality bias, new goods bias, and outlet substitution bias that are generally considered to be the main sources of error in price indexes. The bulk of the paper is devoted to problems in the CPI and PPI, as the GDP deflators tend to be based mainly on the components of these series. We find that there has been surprisingly little work on the problem of overall measurement error in any of these price indexes, and we conclude that there is very little scientific basis for the commonly accepted notion that measured inflation at 2 to 3 percent a year is consistent with price stability.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Wynne, Mark A & Sigalla, Fiona D, 1996. " A Survey of Measurement Biases in Price Indexes," Journal of Economic Surveys, Wiley Blackwell, vol. 10(1), pages 55-89, March.
  • Handle: RePEc:bla:jecsur:v:10:y:1996:i:1:p:55-89
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Fisher, Franklin M. & Shell, Karl, 1972. "The Economic Theory of Price Indices," Elsevier Monographs, Elsevier, edition 1, number 9780122577505 edited by Shell, Karl.
    2. R. Mark Rogers & Steven W. Henderson & Daniel H. Ginsburg, 1993. "Consumer prices: examining housing rental components," Economic Review, Federal Reserve Bank of Atlanta, issue May, pages 32-46.
    3. Reinsdorf, Marshall, 1994. "The Effect of Price Dispersion on Cost of Living Indexes," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(1), pages 137-149, February.
    4. Tullock, Gordon, 1979. "When Is Inflation Not Inflation: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(2), pages 219-221, May.
    5. Domberger, Simon, 1987. "Relative Price Variability and Inflation: A Disaggregated Analysis," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 547-566, June.
    6. Randolph, William C, 1988. "Housing Depreciation and Aging Bias in the Consumer Price Index," Journal of Business & Economic Statistics, American Statistical Association, vol. 6(3), pages 359-371, July.
    7. Donald Siegel, 1991. "Errors in Output Deflators Revisited: Unit Values and the PPI," NBER Working Papers 3935, National Bureau of Economic Research, Inc.
    8. Noe, Nicholas N & von Furstenberg, George M, 1972. "The Upward Bias in the Consumer Price Index due to Substitution," Journal of Political Economy, University of Chicago Press, vol. 80(6), pages 1280-1286, Nov.-Dec..
    9. George J. Stigler & James K. Kindahl, 1970. "The Behavior of Industrial Prices," NBER Books, National Bureau of Economic Research, Inc, number stig70-1, January.
    10. Triplett, Jack E & McDonald, Richard J, 1977. "Assessing the Quality Error in Output Measures: The Case of Refrigerators," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 23(2), pages 137-156, June.
    11. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
    12. Joseph F. Francois, 1989. "Estimating Homeownership Costs: Owners' Estimates of Implicit Rents and the Relative Importance of Rental Equivalence in the Consumer Price Index," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(1), pages 87-99.
    13. Pollak, Robert A., 1989. "The Theory of the Cost-of-Living Index," OUP Catalogue, Oxford University Press, number 9780195058703.
    14. Lichtenberg, Frank R & Griliches, Zvi, 1989. "Errors of Measurement in Output Deflators," Journal of Business & Economic Statistics, American Statistical Association, vol. 7(1), pages 1-9, January.
    15. Manser, Marilyn E & McDonald, Richard J, 1988. "An Analysis of Substitution Bias in Measuring Inflation, 1959-85," Econometrica, Econometric Society, vol. 56(4), pages 909-930, July.
    16. Gordon, Robert J, 1971. "Measurement Bias in Price Indexes for Capital Goods," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 17(2), pages 121-174, June.
    17. Kokoski, Mary F, 1987. "Problems in the Measurement of Consumer Cost-of-Living Indexes," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(1), pages 39-46, January.
    18. Milton Friedman & Anna J. Schwartz, 1982. "Monetary Trends in the United States and United Kingdom: Their Relation to Income, Prices, and Interest Rates, 1867–1975," NBER Books, National Bureau of Economic Research, Inc, number frie82-2, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. George A. Kahn, 1994. "Achieving price stability: a 1993 report card," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 5-18.
    2. Michael F. Bryan & Stephen G. Cecchetti, 1993. "The consumer price index as a measure of inflation," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 15-24.
    3. Inoue, Tetsuya, 1998. "Impact of Information Technology and Implications for Monetary Policy," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 16(2), pages 29-60, December.
    4. George A. Kahn, 1995. "Progress toward price stability: a report card for 1994," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 5-18.
    5. Todd E. Clark, 1996. "U.S. inflation developments in 1995," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 27-42.
    6. Todd E. Clark, 1999. "A comparison of the CPI and the PCE price index," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 15-29.
    7. Dimitri B. Papadimitriou & L. Randall Wray, 1996. "The Consumer Price Index As a Measure of Inflation," Economics Working Paper Archive wp_164, Levy Economics Institute.
    8. Freeman, Scott L. & Niefer, Mark J. & Roop, Joseph M., 1997. "Measuring industrial energy intensity: practical issues and problems," Energy Policy, Elsevier, vol. 25(7-9), pages 703-714.
    9. Stephen G. Cecchetti, 1997. "Measuring short-run inflation for central bankers," Review, Federal Reserve Bank of St. Louis, issue May, pages 143-155.
    10. Timothy F. Bresnahan & Robert J. Gordon, 1996. "Introduction to "The Economics of New Goods"," NBER Chapters,in: The Economics of New Goods, pages 1-26 National Bureau of Economic Research, Inc.
    11. Hoffmann, Johannes, 1998. "Problems of inflation measurement in Germany," Discussion Paper Series 1: Economic Studies 1998,01e, Deutsche Bundesbank.
    12. Mark A. Wynne, 1995. "Sticky prices: what is the evidence?," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q I, pages 1-12.
    13. Todd E. Clark, 1997. "U.S. inflation developments in 1996," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 11-30.
    14. Dimitri B. Papadimitriou & L. Randall Wray, "undated". "Targeting Inflation, The Effects of Monetary Policy on the CPI and Its Housing Component," Economics Public Policy Brief Archive ppb_27, Levy Economics Institute.
    15. Evan F. Koenig, 1994. "Capacity utilization and the evolution of manufacturing output: a closer look at the "bounce-back effect."," Working Papers 9402, Federal Reserve Bank of Dallas.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jecsur:v:10:y:1996:i:1:p:55-89. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0950-0804 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.