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When Does Chaining Reduce The Paasche–Laspeyres Spread? An Application To Scanner Data

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  • Robert J. Hill

Abstract

It is generally believed that chaining reduces the Paasche–Laspeyres spread if prices and quantities are monotonic over time. I consider three alternative definitions of monotonicity and show that none provide either necessary or sufficient conditions for chaining to reduce the Paasche–Laspeyres spread. What matters is the interaction between prices and quantities both in the same period and lagged one period. Sufficient conditions are derived, and the implications of these conditions for the measurement of inflation are considered. The paper concludes with an empirical illustration using scanner data.

Suggested Citation

  • Robert J. Hill, 2006. "When Does Chaining Reduce The Paasche–Laspeyres Spread? An Application To Scanner Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 52(2), pages 309-325, June.
  • Handle: RePEc:bla:revinw:v:52:y:2006:i:2:p:309-325
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    File URL: https://doi.org/10.1111/j.1475-4991.2006.00189.x
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    Cited by:

    1. Ivancic, Lorraine & Fox, Kevin J., 2013. "Can dissimilarity indexes resolve the issue of when to chain price indexes?," Economics Letters, Elsevier, vol. 118(1), pages 6-9.
    2. repec:eee:touman:v:46:y:2015:i:c:p:375-385 is not listed on IDEAS
    3. Iqbal A. Syed & Jan De Haan, 2017. "Age, Time, Vintage, And Price Indexes: Measuring The Depreciation Pattern Of Houses," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 580-600, January.

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