How much does formula versus chaining matter for a cost‐of‐living index? The CPI‐U versus the C‐CPI‐U

Gregory Kurtzon

Economic Inquiry, 2022, vol. 60, issue 2, 645-667

Abstract: A large economics literature has debated the best formula to estimate a cost‐of‐living index (COLI). This study shows that formula does not matter for many purposes for an index chained at a monthly frequency once chain drift has been removed. Spurious chain drift is removed with a new method revealing the large majority of the difference between the CPI‐U and the C‐CPI‐U (a COLI) is due to the CPI‐U weights effectively chaining at the biennial frequency, rather than the difference in formula assumptions. This sufficiently justifies the C‐CPI‐U and similar chained indexes while also showing their assumptions are not critical.

Date: 2022
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https://doi.org/10.1111/ecin.13037

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Persistent link: https://EconPapers.repec.org/RePEc:bla:ecinqu:v:60:y:2022:i:2:p:645-667

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