1. bookVolume 38 (2022): Issue 1 (March 2022)
    Special Issue on Price Indices in Official Statistics
Journal Details
License
Format
Journal
eISSN
2001-7367
First Published
01 Oct 2013
Publication timeframe
4 times per year
Languages
English
access type Open Access

Substitution Bias in the Measurement of Import and Export Price Indices: Causes and Correction

Published Online: 29 Mar 2022
Volume & Issue: Volume 38 (2022) - Issue 1 (March 2022)<br/>Special Issue on Price Indices in Official Statistics
Page range: 107 - 126
Received: 01 Jun 2020
Accepted: 01 Jun 2021
Journal Details
License
Format
Journal
eISSN
2001-7367
First Published
01 Oct 2013
Publication timeframe
4 times per year
Languages
English
Abstract

The import and export price indices of an economy are usually compiled by some Laspeyres type index. It is well known that such an index formula is prone to substitution bias. Therefore, also the terms of trade (ratio of export and import price index) are likely to be distorted. The underlying substitution bias accumulates over time. The present article introduces a simple and transparent retroactive correction approach that addresses the source of the substitution bias and produces meaningful long-run time series of import and export price levels and, therefore, of the terms of trade. Furthermore, an empirical case study is conducted that demonstrates the efficacy and versatility of the correction approach.

Keywords

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