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

Paul Armknecht Jr. and Mick Silver

No 2012/105, IMF Working Papers from International Monetary Fund

Abstract: Consumer price indexes (CPIs) are 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 variants of a hybrid formula suggested by Lent and Dorfman (2009) that substantially reduces bias from Laspeyres-type indexes.

Keywords: WP; price index; Consumer Price Index; Index Numbers; Laspeyres; Superlative; Young; Geometric Young; Lowe index Formula; Lowe index; Törnqvist index; Geometric Young price index; number formula; Lowe price index; Lowe formula; Price indexes; Consumer price indexes; Inflation (search for similar items in EconPapers)
Pages: 28
Date: 2012-04-01
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Citations: View citations in EconPapers (3)

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Journal Article: Post-Laspeyres: The Case for a New Formula for Compiling Consumer Price Indexes (2014)
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