RPI/CPI User Group

Consumer Price Indices and the Identification Problem

Posted By: Courtney Mark August 22, 2013 9:17 am
Posted In: RPI/CPI User Group
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Tags : CPI, RPI, Formula effect

Description

I attach a copy of the published update of my paper dealing with the need to take account of the causes of price changes when constructing elementary aggregates for consumer price indices.  The conclusion is that for most items we are unable to solve the  identification problem of whether supply-side or demand-side influences predominate: in these circumstances, the appropriate formula to use for first-stage aggregation is one that makes no assumptions about the cause of price changes – i.e. one that uses an arithmetic rather than a geometric average.

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