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Can Dissimilarity Indexes Resolve the Issue of When to Chain Price Indexes?

Author

Listed:
  • Lorraine Ivancic

    (School of Economics, The University of New South Wales)

  • Kevin J. Fox

    (School of Economics, The University of New South Wales)

Abstract

Chaining is used in index number construction to update weights and link new items into an index. However, chained indexes can suffer from, sometimes substantial, drift. The Consumer Price Index Manual (ILO, 2004) recommends the use of dissimilarity indexes to determine when chaining is appropriate. This study provides the first empirical application of dissimilarity indexes in this context. We find that dissimilarity indexes do not appear to be sufficient to resolve the issue of when to chain.

Suggested Citation

  • Lorraine Ivancic & Kevin J. Fox, 2010. "Can Dissimilarity Indexes Resolve the Issue of When to Chain Price Indexes?," Discussion Papers 2010-16, School of Economics, The University of New South Wales.
    • Handle: RePEc:swe:wpaper:2010-16
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    File URL: http://research.economics.unsw.edu.au/RePEc/papers/2010-16.pdf
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    References listed on IDEAS

    as
    1. Kevin Fox & Robert Hill & W. Diewert, 2004. "Identifying Outliers in Multi-Output Models," Journal of Productivity Analysis, Springer, vol. 22(1), pages 73-94, July.
    2. Ivancic, Lorraine & Erwin Diewert, W. & Fox, Kevin J., 2011. "Scanner data, time aggregation and the construction of price indexes," Journal of Econometrics, Elsevier, vol. 161(1), pages 24-35, March.
    3. 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.
    4. Reinsdorf, Marshall B, 1999. "Using Scanner Data to Construct CPI Basic Component Indexes," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(2), pages 152-160, April.
    5. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Index numbers; price indexes; chain drift; dissimilarity;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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