Alternative Strategies for Aggregating Prices in the CPI / Matthew D. Shapiro, David W. Wilcox.

Format:

Book

Author/Creator:

Shapiro, Matthew D.

Contributor:

National Bureau of Economic Research.

Wilcox, David W.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5980.

NBER working paper series no. w5980

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1997.

Summary:

The Consumer Price Index does not take into account the fact that consumers alter the composition of their purchases in response to changes in relative prices. This substitution effect will cause the CPI to grow faster than the cost of living. This paper presents new estimates showing that this bias in the CPI averaged 0.3 percentage points per year between December 1986 and December 1995. This bias could be eliminated by using a superlative index to aggregate prices across the item-area strata of the CPI. The paper discusses the practical difficulties in implementing such a calculation and suggests a method for overcoming them. In particular, it shows how to construct an accurate approximation to a superlative price index that can be published with the same timeliness as the CPI.

Notes:

Print version record

March 1997.