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Retrospective Computations of Price Index Numbers: Theory and Application

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  • Ludwig von Auer
  • Alena Shumskikh

Abstract

Due to outdated weighting information, a Laspeyres‐based consumer price index (CPI) is prone to accumulating upward bias. Therefore, the present study introduces and examines simple and transparent revision approaches that retrospectively address the source of the bias. They provide a consistent long‐run time series of the CPI and require no additional information. Furthermore, a coherent decomposition of the bias into the contributions of individual product groups is developed. In a case study, the approaches are applied to a Laspeyres‐based CPI. The empirical results confirm the theoretical predictions. The proposed revision approaches are adoptable not only to most national CPIs but also to other price‐level measures such as the producer price index or the import and export price indices.

Suggested Citation

  • Ludwig von Auer & Alena Shumskikh, 2024. "Retrospective Computations of Price Index Numbers: Theory and Application," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 70(1), pages 60-79, March.
    • Handle: RePEc:bla:revinw:v:70:y:2024:i:1:p:60-79
    DOI: 10.1111/roiw.12627
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    References listed on IDEAS

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    1. Ludwig von Auer & Jochen Wengenroth, 2021. "Consistent aggregation with superlative and other price indices," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 184(2), pages 589-615, April.
    2. David E. Lebow & Jeremy B. Rudd, 2003. "Measurement Error in the Consumer Price Index: Where Do We Stand?," Journal of Economic Literature, American Economic Association, vol. 41(1), pages 159-201, March.
    3. Walter Erwin Diewert & Marco Huwiler & Ulrich Kohli, 2009. "Retrospective Price Indices and Substitution Bias," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 145(II), pages 127-135, June.
    4. D. S. Prasada Rao & Alicia Rambaldi & Howard Doran, 2010. "Extrapolation Of Purchasing Power Parities Using Multiple Benchmarks And Auxiliary Information: A New Approach," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 56(s1), pages 59-98, June.
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