Premium
A SURVEY OF MEASUREMENT BIASES IN PRICE INDEXES
Author(s) -
Wynne Mark A.,
Sigalla Fiona D.
Publication year - 1996
Publication title -
journal of economic surveys
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.657
H-Index - 92
eISSN - 1467-6419
pISSN - 0950-0804
DOI - 10.1111/j.1467-6419.1996.tb00003.x
Subject(s) - economics , inflation (cosmology) , price index , econometrics , producer price index , wholesale price index , consumer price index (south africa) , index (typography) , price level , hedonic index , industrial production index , quality (philosophy) , gross domestic product , observational error , point (geometry) , macroeconomics , mid price , mathematics , monetary policy , production (economics) , computer science , philosophy , physics , geometry , epistemology , theoretical physics , world wide web
. This paper reviews the literature on measurement error in the major US price indexes—the Consumer Price Index (CPI), the Producer Price Index (RPI), and the Gross Domestic Product (GDP) deflators. We take as our point of departure Triplett's, 1975, survey and focus on the studies of measurement error that have appeared since then. We review the problems of substitution bias, quality bias, new goods bias, and outlet substitution bias that are generally considered to be the main sources of error in price indexes. The bulk of the paper is devoted to problems in the CPI and PPI, as the GDP deflators tend to be based mainly on the components of these series. We find that there has been surprisingly little work on the problem of overall measurement error in any of these price indexes, and we conclude that there is very little scientific basis for the commonly accepted notion that measured inflation at 2 to 3 percent a year is consistent with price stability.