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

Post-Laspeyres: The Case for a New Formula for Compiling Consumer Price Indexes by Paul A. Armknecht
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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.
International Monetary Fund; April 2012
28 pages; ISBN 9781475515572
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Title: Post-Laspeyres: The Case for a New Formula for Compiling Consumer Price Indexes
Author: Paul A. Armknecht; Mick Silver