Scanner Data, Time Aggregation and the Construction of Price Indexes
The impact of weekly, monthly and quarterly time aggregation on estimates of price change is examined for nineteen different supermarket item categories over a fifteen month period using scanner data. We find that time aggregation choices (the choice of a weekly, monthly or quarterly unit value concept for prices) have a considerable impact on estimates of price change. When chained indexes are used, the difference in price change estimates can be huge, ranging from 0.28% to 29.73% for a superlative (Fisher) index and an incredible 14.88% to 46,463.71% for a non-superlative (Laspeyres) index. The results suggest that traditional index number theory breaks down when weekly data with severe price bouncing are used, even for superlative indexes. Monthly and (in some cases even) quarterly time aggregation were found to be insufficient to eliminate downward drift in superlative indexes. In order to eliminate chain drift, multilateral index number methods are adapted to provide drift free measures of price change.
|Date of creation:||22 Sep 2009|
|Date of revision:||22 Sep 2009|
|Contact details of provider:|| Web page: http://www.economics.ubc.ca/|
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"High-Frequency Substitution and the Measurement of Price Indexes,"
NBER Chapters,in: Scanner Data and Price Indexes, pages 123-150
National Bureau of Economic Research, Inc.
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- W. Erwin Diewert, 1995. "Axiomatic and Economic Approaches to Elementary Price Indexes," NBER Working Papers 5104, National Bureau of Economic Research, Inc.
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- W. Erwin Diewert, 1999. "Axiomatic and Economic Approaches to International Comparisons," NBER Chapters,in: International and Interarea Comparisons of Income, Output, and Prices, pages 13-107 National Bureau of Economic Research, Inc.
- W. Erwin Diewert, 1996. "Axiomatic and Economic Approaches to International Comparisons," NBER Working Papers 5559, National Bureau of Economic Research, Inc.
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- Hill, Robert J., 2006. "Superlative index numbers: not all of them are super," Journal of Econometrics, Elsevier, vol. 130(1), pages 25-43, January. Full references (including those not matched with items on IDEAS)
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