Inflation Measurement in the Presence of Stockpiling and Smoothing of Consumption

Ludwig von Auer

No 2024-02, Research Papers in Economics from University of Trier, Department of Economics

Abstract: A chained price index is said to suffer from chain drift bias if it indicates an overall price change, even though the prices and quantities in the current period have reverted back to their levels of the base period. The empirical relevance of this bias is well documented in studies that apply sub-annual chaining to scanner data. There it is shown that stockpiling can lead to downward chain drift bias. The present paper draws attention to the fact that smoothing consumption causes substantial upward chain drift. In addition, this study introduces a simple utility framework consistent with stockpiling and smoothing. Building on this framework, a "stress test" is conducted that examines whether rolling window variants of multilateral indices (GEKS, TPD, and GK) effectively curtail the chain drift problem.

Pages: 34 pages
Date: 2024
New Economics Papers: this item is included in nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.uni-trier.de/fileadmin/fb4/prof/VWL/EWF/Research_Papers/2024-02.pdf First version, 2024 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:trr:wpaper:202402

Access Statistics for this paper

More papers in Research Papers in Economics from University of Trier, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Matthias Neuenkirch ().