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An Index Number Formula Problem: The Aggregation of Broadly Comparable Items

Author/Editor: Silver, Mick
Authorized for Distribution: January 1, 2009
Electronic Access: Free Full Text (PDF file size is 407KB)
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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: Index number theory informs us that if data on matched prices and quantities are available, a superlative index number formula is best to aggregate heterogeneous items, and a unit value index to aggregate homogeneous ones. The formulas can give very different results. Neglected is the practical case of broadly comparable items. This paper provides a formal analysis as to why such formulas differ and proposes a solution to this index number problem.
Series: Working Paper No. 09/19
Subject(s): Indexation | Consumer price indexes | Producer price indexes | Economic models
Author's keyword(s): Unit value index; Superlative index; Consumer price index; Producer Price Index; Hedonic regression; Index numbers; Price dispersion.
    Published:   January 1, 2009        
            Format:   Paper
    Stock No:   WPIEA2009019   Pages:   20
    Price:   US$18.00
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