Auditing the Producer Price Index: Micro Evidence from Prescription Pharamceutical Preparations

Ernst R Berndt, Zvi Griliches and Joshua G Rosett

Journal of Business & Economic Statistics, 1993, vol. 11, issue 3, 251-64

Abstract: From January 1984 through December 1989, the Bureau of Labor Statistics (BLS) price index for prescription pharmaceuticals grew at 9.09 percent per year. Using BLS-type Laspeyres index procedures with monthly price and quantity data on all prescription pharmaceuticals sold by four U.S. pharmaceutical manufacturers accounting for 24 percent of industry domestic sales, we find that the four-company index increases at 6.68 percent per year. When we employ a Divisia price index with smoothed weights incorporating new goods, the index grows 6.03 percent per year. Why does the BLS index grow 50 percent more rapidly than the Divisia index? That mystery is the focal point of our article.

Date: 1993
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Working Paper: Auditing the Producer Price Index: Micro Evidence From Prescription Pharmaceutical Preparations (1992)
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