Measurement bias in the HICP: what do we know and what do we need to know?

Diego Rodriguez-Palenzuela and Mark Wynne

No 206, Working Papers from Federal Reserve Bank of Dallas

Abstract: The Harmonized Index of Consumer Prices (HICP) is the primary measure of inflation in the euro area, and plays a central role in the policy deliberations of the European Central Bank (ECB). The ECB defines its Treaty mandate of price stability as \"?a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2 percent [?] to be maintained over the medium term.\" Among the rationales given for defining price stability as prevailing at some positive measured inflation rate is the possibility that the HICP as published incorporates measurement errors of one sort or another that may cause it to systematically overstate the true rate of inflation in the euro area. This paper reviews what currently is known about the scope of measurement error in the HICP. We conclude that given the vague conceptual framework of the HICP, the scant research on price measurement issues in the EU and the ongoing improvements in the HICP, there is very little scientific basis at this time for a point (or even an interval) estimate of a positive bias in the HICP.

Keywords: Euro; European Central Bank; Prices (search for similar items in EconPapers)
Pages: 52 pages
Date: 2002
Note: Published as: Wynne, Mark A. and Diego Rodriquez-Palenzuela (2004), "Measurement Bias in The HICP: What Do We Know and What Do We Need to Know?" Journal of Economic Surveys 18 (1): 79-112.
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Related works:
Journal Article: Measurement Bias in the HICP: What do we know and What do we need to know? (2004)
Working Paper: Measurement bias in the HICP: what do we know, and what do we need to know? (2002)
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