Empirical studies on consumer price index construction

This dissertation is about the construction of the Consumer Price Index (CPI), the most widely used measure of inflation.

We can distinguish three steps in the compiliation of CPIs.

In the first step, the ideal goal has to be formulated. This goal could be inflation, or alternatively a constant utility price index. The latter measures the change in the minimum costs for a representative consumer (or household) needed to retain a constant standard of living or utitlity.

Since inflation is only a general notation and utility cannot be measured directy, a certain index formula must be chosen in the second step. Timeliness, which is generally viewed as an important aspect of quality, has led most statististical national offices to adopt the Laspeyres price index as their target index.

The Laspeyres index is computed as a weighted average of the various commodity group indexes, where the weights reflect base period expenditure shares. The question arises whether the Laspeyres principle corresponds to what one ideally wants to measure, or is it only performed out of necessity? In the third step, sampling procedures are needed to estimate the population value of the Laspeyres index.

The beginning of this these deals with estimating the CPI subindex weights. The second part is about empirical research using bar-code scanning data.

Haan, J. de (2000). Empirical studies on consumer price index construction, Erasmus University Rotterdam. (Only available in print)