Retrospective Price Indices and Substitution Bias
Walter Diewert,
Marco Huwiler and
Ulrich Kohli
Economics working papers from Vancouver School of Economics
Abstract:
The consumer price index (CPI) is usually computed as a fixed-weighted Laspeyres price index, with the weights updated at discrete intervals only. It is well known that the Laspeyres functional form entails a substitution bias. One way to reduce it would be to use chained indices, and superlative ones if possible. Unfortunately, the necessary data are often missing. This paper proposes a simple method to retroactively compute the CPI once updated weights become available. The proposed index has the Fisher form. This makes it possible to assess the size of the substitution bias. An application to Swiss data is provided.
Keywords: price index; inflation; superlative indices; substitution bias (search for similar items in EconPapers)
JEL-codes: C43 E31 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2009-01-20, Revised 2009-01-20
New Economics Papers: this item is included in nep-cba and nep-mac
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Citations: View citations in EconPapers (9)
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Journal Article: Retrospective Price Indices and Substitution Bias (2009) 
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Persistent link: https://EconPapers.repec.org/RePEc:ubc:bricol:erwin_diewert-2009-4
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