Post-Laspeyres: The Case for a New Formula for Compiling Consumer Price Indexes

Paul Armknecht and Mick Silver

Review of Income and Wealth, 2014, vol. 60, issue 2, 225-244

Abstract: type="main">

Consumer price indexes (CPIs) are commonly 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 quite simple variants of a hybrid formula suggested by Lent and Dorfman that use the same data as Laspeyres-type indexes but substantially reduce their bias.

Date: 2014
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Working Paper: Post-Laspeyres: The Case for a New Formula for Compiling Consumer Price Indexes (2012)
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