<abstract xmlns="http://www.w3.org/1999/xhtml"><p>In this article, we examine the effects of different frequencies and implementation months of basket updates on the fixed-basket price index – the Lowe index, through theoretical analysis and empirical simulation using Canadian data from 2000 to 2013. We find that both an increased frequency of basket updates and a faster implementation of these new baskets will reduce substitution bias in the CPI. However, we also find that improvements to the method of accelerating frequency has diminishing marginal returns in practice – as each subsequent increase in the frequency with which the CPI basket is updated has a less pronounced effect; and the ideal link-month when a new basket is implemented is unpredictable, since the impact of the implementation lag depends upon the consistency between short-term price movements and long-term price trends.</p></abstract>

In this article, we examine the effects of different frequencies and implementation months of basket updates on the fixed-basket price index – the Lowe index, through theoretical analysis and empirical simulation using Canadian data from 2000 to 2013. We find that both an increased frequency of basket updates and a faster implementation of these new baskets will reduce substitution bias in the CPI. However, we also find that improvements to the method of accelerating frequency has diminishing marginal returns in practice – as each subsequent increase in the frequency with which the CPI basket is updated has a less pronounced effect; and the ideal link-month when a new basket is implemented is unpredictable, since the impact of the implementation lag depends upon the consistency between short-term price movements and long-term price trends.

The Effects of the Frequency and Implementation Lag of Basket Updates on the Canadian CPI

Journal of Official Statistics

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

In this article, we examine the effects of different frequencies and implementation months of basket updates on the fixed-basket price index – the Lowe index,...

The Effects of the Frequency and Implementation Lag of Basket Updates on the Canadian CPI

Published Online: Nov 18, 2017

Page range: 979 - 1004

Received: Jan 01, 2016

Accepted: Jan 01, 2017

DOI: https://doi.org/10.1515/jos-2017-0046

Keywords
Consumer price index, Lowe formula, fixed-basket index, basket-update frequency, implementation lag, measurement bias, commodity substitution bias, superlative indexes, Fisher, Walsh, Törnqvist indexes

© 2017 Ning Huang et al., published by De Gruyter Open

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

The Effects of the Frequency and Implementation Lag of Basket Updates on the Canadian CPI

Published Online: Nov 18, 2017

Page range: 979 - 1004

Received: Jan 01, 2016

Accepted: Jan 01, 2017

DOI: https://doi.org/10.1515/jos-2017-0046

KeywordsConsumer price index, Lowe formula, fixed-basket index, basket-update frequency, implementation lag, measurement bias, commodity substitution bias, superlative indexes, Fisher, Walsh, Törnqvist indexes

© 2017 Ning Huang et al., published by De Gruyter Open

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Keywords
Consumer price index, Lowe formula, fixed-basket index, basket-update frequency, implementation lag, measurement bias, commodity substitution bias, superlative indexes, Fisher, Walsh, Törnqvist indexes