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Swiss Journal of Economics and Statistics

, Volume 145, Issue 2, pp 127–135 | Cite as

Retrospective Price Indices and Substitution Bias

  • W. Erwin Diewert
  • Marco Huwiler
  • Ulrich Kohli
Open Access
Article

Summary

The consumer price index (CPI) is usually computed as a fixed-weighted Laspeyres price index, with the weights updated at discrete intervals only. It is well known that the Laspeyres functional form entails a substitution bias. One way to reduce it would be to use chained indices, and superlative ones if possible. Unfortunately, the necessary data are often missing. This paper proposes a simple method to retroactively compute the CPI once updated weights become available. The proposed index has the Fisher form. This makes it possible to assess the size of the substitution bias. An application to Swiss data is provided.

Keywords

price index inflation superlative indices substitution bias 

JEL-Classification

C43 E31 

References

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Copyright information

© Swiss Society of Economics and Statistics 2009

Authors and Affiliations

  • W. Erwin Diewert
    • 1
  • Marco Huwiler
    • 2
  • Ulrich Kohli
    • 3
    • 4
  1. 1.University of British ColumbiaVancouverCanada
  2. 2.Clariden LeuZurichSwitzerland
  3. 3.Swiss National BankZurichSwitzerland
  4. 4.University of GenevaGenevaSwitzerland

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