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American Economic Review: Vol. 101 No. 5 (August 2011)
AER Volume. 101, Issue 5 | 
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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
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)
Pakes, Ariel (Harvard U)
JEL Classifications
C43: Index Numbers and Aggregation; leading indicators
E31: Price Level; Inflation; Deflation
E31: Price Level; Inflation; Deflation
