Post-Laspeyres: The Case for a New Formula for Compiling Consumer Price Indexes
April 1, 2012
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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.
Subject: Consumer price indexes, Expenditure, Inflation, Labor, Price indexes, Prices
Keywords: Consumer Price Index, Consumer price indexes, Geometric Young, Geometric Young price index, Index Numbers, Inflation, Laspeyres, Lowe formula, Lowe index, Lowe index Formula, Lowe price index, number formula, price index, Price indexes, Superlative, Törnqvist index, WP, Young
Pages:
28
Volume:
2012
DOI:
Issue:
105
Series:
Working Paper No. 2012/105
Stock No:
WPIEA2012105
ISBN:
9781475502954
ISSN:
1018-5941
