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American Economic Review: Vol. 101 No. 5 (August 2011)

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An Experimental Component Index for the CPI: From Annual Computer Data to Monthly Data on Other Goods

Article Citation

Erickson, Tim, and Ariel Pakes. 2011. "An Experimental Component Index for the CPI: From Annual Computer Data to Monthly Data on Other Goods." American Economic Review, 101(5): 1707-38.

DOI: 10.1257/aer.101.5.1707

Abstract

The CPI component indices are obtained from comparing price quotes at a given store in different periods. If we omit comparisons from goods in the store in the initial, but not in the comparison, period we generate a selection bias: goods that exit are disproportionately obsolete goods that have falling prices. Building on Pakes (2003), we explain why standard hedonic predictions for second-period prices of exiting goods do not account for this bias. New hedonic methods are derived, shown to have desirable properties, and are applied to three CPI samples where they generate significant selection corrections. (JEL C43, E31)

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Authors

Erickson, Tim (Bureau of Labor Statistics, US Department of Labor)
Pakes, Ariel (Harvard U)

JEL Classifications

C43: Index Numbers and Aggregation; leading indicators
E31: Price Level; Inflation; Deflation


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