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Implications of rounding and rebasing for empirical analysis using consumer price inflation

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  • Sharon Kozicki
  • Barak Hoffman

Abstract

Monthly CPI inflation rates can be spuriously choppy when constructed using the official CPI, rebased with 1982-84=100. The problem can be traced to rounding that occurs when only one digit after the decimal place is reported in rebased CPI data. This paper compares three CPI measures to illustrate how rounding and rebasing introduce distortions that affect variance properties, alter lag specification in autoregressive models, and "flip" results of unit root tests. To reduce distortions, the paper recommends using either original release data or the CPI rebased with 1967=100.

Suggested Citation

  • Sharon Kozicki & Barak Hoffman, 1999. "Implications of rounding and rebasing for empirical analysis using consumer price inflation," Research Working Paper 99-08, Federal Reserve Bank of Kansas City.
  • Handle: RePEc:fip:fedkrw:99-08
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    References listed on IDEAS

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    Keywords

    Inflation (Finance) ; Consumer price indexes;

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