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The Laspeyres bias in the Spanish consumer price index

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  • J. Ruiz-Castillo
  • E. Ley
  • M. Izquierdo

Abstract

The CPI compares the cost of acquiring a reference quantity vector at current and base prices. Such reference vector is the vector of mean quantities actually bought by a reference population, whose consumption patterns are investigated during a period τ prior to the index base period 0. This paper shows that unless the price change between these two dates is taken into account, the CPI ceases to be a proper statistical price index of the Laspeyres type. Among several negative consequences, the most important is that this omission produces a bias in the measurement of inflation: the 'Laspeyres bias'. Using Spanish data, the size of the Laspeyres bias is estimated at -0.061% per year, during 1992-1998. The Laspeyres bias in shorter time periods reached -0.122% per year in 1992, and -0.108 in 1997.

Suggested Citation

  • J. Ruiz-Castillo & E. Ley & M. Izquierdo, 2002. "The Laspeyres bias in the Spanish consumer price index," Applied Economics, Taylor & Francis Journals, vol. 34(18), pages 2267-2276.
  • Handle: RePEc:taf:applec:v:34:y:2002:i:18:p:2267-2276
    DOI: 10.1080/00036840210138428
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    Cited by:

    1. Okidi, John A. & Nsubuga, Vincent, 2010. "Inflation differentials among Ugandan household: 1997 - 2007," Research Reports 102497, Economic Policy Research Centre (EPRC).
    2. Okidi, John A. & Nsubuga, Vincent, 2010. "Inflation Differentials Among Ugandan Households: 1997 - 2007," Research Series 150482, Economic Policy Research Centre (EPRC).
    3. Ruiz-Castillo, Javier & Ley, Eduardo & Izquierdo, Mario, 2002. "Distributional aspects of the quality change bias in the CPI: evidence from Spain," Economics Letters, Elsevier, vol. 76(1), pages 137-144, June.
    4. Agnieszka Leszczynska & Aleksandra Halka, 2012. "What does the Consumer Price Index Measure? Bias Estimates for Poland," EcoMod2012 4370, EcoMod.

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