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

Author/Editor:

Mick Silver ; Saeed Heravi

Publication Date:

July 1, 2006

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:

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.

Series:

Working Paper No. 06/174

Subject:

English

Publication Date:

July 1, 2006

ISBN/ISSN:

9781451864342/1018-5941

Stock No:

WPIEA2006174

Format:

Paper

Pages:

18

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