High-Frequency Substitution and the Measurement of Price Indexes

36 Pages Posted: 16 Mar 2001 Last revised: 5 Nov 2022

See all articles by Robert C. Feenstra

Robert C. Feenstra

University of California, Davis - Department of Economics; National Bureau of Economic Research (NBER)

Matthew D. Shapiro

University of Michigan at Ann Arbor - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: March 2001

Abstract

This paper investigates the use of high-frequency scanner data to construct price indexes. In the presence of inventory behavior, purchases and consumption by individuals differ over time. Cost-of-living indexes can still be constructed using data on purchases. For weekly data on canned tuna, the paper contrast two different types of price indexes: fixed-base and chained indexes. Only the former are theoretically correct, and in fact, the chained indexes have a pronounced upward bias for most regions of the U.S. This upward bias can be caused by consumers purchasing goods for inventory. The paper presents some direct statistical support for inventory behavior being the cause of the upward bias, though advertising and special displays also have a very significant impact on shopping patterns.

Suggested Citation

Feenstra, Robert C. and Shapiro, Matthew D., High-Frequency Substitution and the Measurement of Price Indexes (March 2001). NBER Working Paper No. w8176, Available at SSRN: https://ssrn.com/abstract=263438

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