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

Working Paper No. 12/105

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.
Publication date: April 2012
ISBN: 9781475502954
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Topics covered in this book

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Economics- Macroeconomics , Economics / General , International - Economics , Consumer Price Index , Index Numbers , Laspeyres , Superlative , Young , Geometric Young , Lowe Index Formula , Prices

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