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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Due to outdated weighting information, a Laspeyres-based Consumer Price Index (CPI) is prone to accumulating upward bias.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 they 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 not only adoptable 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, 2022. "Retrospective Computations of Price Index Numbers: Theory and Application," Research Papers in Economics 2022-01, University of Trier, Department of Economics.
    • Handle: RePEc:trr:wpaper:202201
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    File URL: http://www.uni-trier.de/fileadmin/fb4/prof/VWL/EWF/Research_Papers/2022-01.pdf
    File Function: First version, 2022
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    References listed on IDEAS

    as
    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. Greenlees John S. & Williams Elliot, 2010. "Reconsideration of Weighting and Updating Procedures in the US CPI," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 230(6), pages 741-758, December.
    3. Herzberg, Julika & Knetsch, Thomas A. & Schwind, Patrick & Weinand, Sebastian, 2021. "Quantifying bias and inaccuracy of upper-level aggregation in HICPs for Germany and the euro area," Discussion Papers 06/2021, Deutsche Bundesbank.
    4. Ludwig von Auer & Alena Shumskikh, 2020. "Substitution Bias in the Measurement of Import and Export Price Indices: Causes and Correction," Research Papers in Economics 2020-10, University of Trier, Department of Economics.
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    Cited by:

    1. Ludwig von Auer, 2024. "Inflation Measurement in the Presence of Stockpiling and Smoothing of Consumption," Research Papers in Economics 2024-02, University of Trier, Department of Economics.
    2. von Auer Ludwig & Shumskikh Alena, 2022. "Substitution Bias in the Measurement of Import and Export Price Indices: Causes and Correction," Journal of Official Statistics, Sciendo, vol. 38(1), pages 107-126, March.

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