Substitution Bias in Multilateral Methods for CPI Construction Using Scanner Data
67 Pages Posted: 2 Nov 2018 Last revised: 5 Nov 2018
Date Written: October 1, 2018
The use of multilateral indexes is increasingly an accepted approach for incorporating scanner data in a Consumer Price Index. The attractiveness stems from the ability to be able to control for chain drift bias. Consensus on two key issues has yet to be achieved: (i) the best multilateral method to use, and (ii) the best way of extending the resulting series when new observations become available. We present theoretical and simulation evidence on the extent of substitution biases in alternative methods. Our results suggest the use of the CCDI index with a new method, the “mean splice”, for updating.
Keywords: Consumer Price Index, chain drift, multilateral indexes, Rolling Window indexes, linking methods
JEL Classification: C43, E31
Suggested Citation: Suggested Citation