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Why Elementary Price Index Number Formulas Differ: Price Dispersion and Product Heterogeneity

Author/Editor: Silver, Mick | Heravi, Saeed
Authorized for Distribution: July 1, 2006
Electronic Access: Free Full Text (PDF file size is 604KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: The Consumer Price Index Manual (2004) provides guidelines for aggregation formulas that are promulgated at IMF training courses and technical assistance missions. This paper develops elementary level aggregation theory to better inform users and compilers. Most countries use either the Dutot or Jevons index formula. These formulas generally give different results; advice on choice of formula matters. Using an approach based on sample estimators, and an illustration based on scanner data, the paper shows how differences in these formulas can be explained by changes in price dispersion and, in turn, by product heterogeneity. Implications for choice of formula are considered.
 
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Series: Working Paper No. 06/174
Subject(s): Consumer price indexes | Inflation
Author's keyword(s): Consumer price index | elementary aggregate index | hedonic regression | index numbers | price dispersion | scanner data
 
English  
    Published:   July 1, 2006        
    ISBN/ISSN:   0 / 1934-7073   Format:   Paper
    Stock No:   WPIEA2006174   Pages:   18
    Price:   US$15.00 (Academic Rate: US$15.00 )
       
     
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