<abstract xmlns="http://www.w3.org/1999/xhtml">

<p>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.</p>
</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.

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

University of Trier, Fachbereich IV-Finanzwissenschaft

Journal of Official Statistics

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

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

Publié en ligne: 29 mars 2022

Pages: 107 - 126

Reçu: 01 juin 2020

Accepté: 01 juin 2021

DOI: https://doi.org/10.2478/jos-2022-0006

Mots clés
Distortion, official statistics, terms of trade, time series

© 2022 Ludwig von Auer et al., published by Sciendo

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

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

Publié en ligne: 29 mars 2022

Pages: 107 - 126

Reçu: 01 juin 2020

Accepté: 01 juin 2021

DOI: https://doi.org/10.2478/jos-2022-0006

Mots clésDistortion, official statistics, terms of trade, time series

© 2022 Ludwig von Auer et al., published by Sciendo

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

Mots clés
Distortion, official statistics, terms of trade, time series