Post-Laspeyres: The Case for a New Formula for Compiling Consumer Price Indexes

Author/Editor:

Paul A. Armknecht ; Mick Silver

Publication Date:

April 1, 2012

Electronic Access:

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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:

Consumer price indexes (CPIs) are compiled at the higher (weighted) level using Laspeyres-type arithmetic averages. This paper questions the suitability of such formulas and considers two counterpart alternatives that use geometric averaging, the Geometric Young and the (price-updated) Geometric Lowe. The paper provides a formal decomposition and understanding of the differences between the two. Empirical results are provided using United States CPI data. The findings lead to an advocacy of variants of a hybrid formula suggested by Lent and Dorfman (2009) that substantially reduces bias from Laspeyres-type indexes.

Series:

Working Paper No. 2012/105

Subject:

Consumer price indexes Expenditure Inflation Labor Price indexes Prices

English

Publication Date:

April 1, 2012

ISBN/ISSN:

9781475502954/1018-5941

Stock No:

WPIEA2012105

Pages:

28

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