Multilateral index approaches in the presence of product-specific price trends and data gaps

Ludwig von Auer and Sebastian Weinand

No 2026-08, Research Papers in Economics from University of Trier, Department of Economics

Abstract: The prices of some products respond more strongly to changes in the general price level than others. This study explains why such product-specific price level elasticities lead to biased time-product-dummy (TPD) estimates of price levels. Other popular multilateral index approaches such as the Gini-Éltető-Köves-Szulc (GEKS) and Geary-Khamis (GK) methods also fail to address this source of bias in inflation measurement. Therefore, this paper introduces the NLTPD regression – a nonlinear generalization of the TPD regression. By estimating product-specific price-level elasticities, the NLTPD regression effectively addresses this source of bias. A simulation study and an application to real-world scanner data compare the performance of the four multilateral index approaches. Except for the rather theoretical case of complete data, the NLTPD regression outperforms the other three approaches.

Keywords: inflation; measurement bias; price index; scanner data (search for similar items in EconPapers)
JEL-codes: C43 E31 E52 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2026
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