Can Dissimilarity Indexes Resolve the Issue of When to Chain Price Indexes?

11 Pages Posted: 13 Nov 2010

See all articles by Lorraine Ivancic

Lorraine Ivancic

University of New South Wales (UNSW)

Kevin J. Fox

UNSW Australia Business School, School of Economics

Date Written: November 10, 2010

Abstract

Chaining is used in index number construction to update weights and link new items into an index. However, chained indexes can suffer from, sometimes substantial, drift. The Consumer Price Index Manual (ILO, 2004) recommends the use of dissimilarity indexes to determine when chaining is appropriate. This study provides the first empirical application of dissimilarity indexes in this context. We find that dissimilarity indexes do not appear to be sufficient to resolve the issue of when to chain.

Keywords: Index numbers, price indexes, chain drift, dissimilarity

JEL Classification: C43, E31

Suggested Citation

Ivancic, Lorraine and Fox, Kevin J., Can Dissimilarity Indexes Resolve the Issue of When to Chain Price Indexes? (November 10, 2010). UNSW Australian School of Business Research Paper No. 2010 ECON 16. Available at SSRN: https://ssrn.com/abstract=1706984

Lorraine Ivancic

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

Kevin J. Fox (Contact Author)

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia
(02)9385-3320 (Phone)
(02)9313-6337 (Fax)

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