Consumer Price Indexes Time-Space Integration

Frontmatter

Are Integration and Comparison Between CPIs and PPPs Feasible?

Abstract

The integration and comparison between the Consumer Price Indices (CPIs) and the Purchasing Power Parities (PPPs) has been widely discussed in literature and the need of a more integrated approach for calculating these indices has been emphasized. The paper focuses on these issues, both from a theoretical and practical point of view, suggesting the use of a broader definition of the comparability of products for the PPP calculation and a simple statistical method for investigating the advantages of broadening the definition of comparability to include additional products in the PPP calculation.

Concerning the comparisons between CPIs and PPPs, the paper illustrates price index decomposition methods in order to measure the factors (essentially due to the evolution of prices and to the share of consumption expenditure concerning the different products and services) which explain the divergences between the CPIs of two countries from time t−1 to time t, and the variations over the same period of the PPPs concerning these countries calculated at time t−1 and time t. However, it is clear that for achieving the integration of PPP computation with CPI activities an increased amount of information should be collected and processed at least in a benchmark year. Therefore, is necessary to carry out more research on these topics at an international level in order to agree on a broader definition of comparability of products for the computation of the PPPs by using the analyses that we have suggested in this paper.

Luigi Biggeri, Tiziana Laureti

Retrospective Approximations of Superlative Price Indexes for Years Where Expenditure Data Is Unavailable

Abstract

CPIs are typically fixed-weight or Lowe indexes. Several statistical agencies have recently been experimenting with retrospective computations of superlative price index numbers, to provide information on (upper level) substitution bias of their CPIs. This obviously requires expenditure data of all the periods compared. However, detailed expenditure data are often available only for fairly distant benchmark years, particularly for the “weight-reference periods” of consecutive CPI series. This chapter addresses the question of how to approximate a consistent time series of annual superlative price index numbers such that use is made of all the available data. We consider various approximation methods, all of which are based on linear combinations of expenditure shares from benchmark years. The methods are illustrated on a data set consisting of the elementary aggregate price index numbers and expenditure weights that have been used for the computation of the official Danish CPI from 1996 to 2006. We also compare the resulting index numbers with Lloyd–Moulton index numbers.

Jan de Haan, Bert M. Balk, Carsten Boldsen Hansen

Harmonized Cross Region and Cross Country CPI Time-Space Integration in the Euro-Zone

Three Characters in Search of an Author

Abstract

This papers deals with the problem of the time-space integration of the CPIs produced in the Euro-zone through the integration of the baskets for time and space price collection. After revising and discussing the existing system and its historical background, the authors propose a simplified approach that allows cross-region and cross-country time-space CPIs integration in a harmonized framework and results in a gain of efficiency and effectiveness and in cost and time saving.

Guido Ferrari, Tiziana Laureti, José Mondéjar Jiménez

Consumer Price Indexes in Space

Frontmatter

Modelling Spatially Correlated Error Structures in the Time-Space Extrapolation of Purchasing Power Parities

Abstract

The paper examines the role and significance of modeling spatially correlated disturbances in the extrapolation of purchasing power parities and real incomes. Alternative specifications for the spatial weighting matrix are experimented within the general econometric framework developed by Rao et al for the purpose of constructing a consistent time-space tableau of PPPs based on the PPPs for benchmarks constructed as a part of the International Comparison Program (ICP) and temporal movements in national price levels. The paper presents a comparative analysis of the effect of alternative specifications of the spatial weights matrix on the PPP extrapolations. A method based on the principal components approach is suggested when several spatial weights matrices are available. The paper presents empirical findings from the application of the methodology to ICP data available including the recently completed 2005 ICP Benchmark comparisons available from the World Bank. The results clearly indicate the need to model and use a spatially correlated error structure especially when the benchmark data are incomplete. The results are very similar when the spatial weights are based on trade data or on principal component weights.

Alicia N. Rambaldi, D.S. Prasada Rao, K. Renuka Ganegodage

Price Indexes across Space and Time and the Stochastic Properties of Prices

Abstract

The availability of scanner data from large-scale retailers makes the construction of a continuously updated system of price indexes over space and time for an important share of household consumption expenditures possible. However, building a coherent (transitive) system of price indexes across space and time involves issues that are irrelevant for bilateral price indexes or multilateral price indexes only over space. Some of these issues were discussed by Hill (2004), but in my opinion the most important has been ignored. Indeed, it is very likely that the same commodity is differently priced across space, but in the long run the movements of its prices will be similar (stable) in space. So it is quite natural to ask price indexes for pairs of space situations not to diverge over time if the prices of each single commodity in the basket remain approximatively pairwise proportional in the two sites. In this work, we give a definition of the test of stability preservation, starting from the stochastic properties that panels of price time series seem to obey to. Then, many different approaches to the construction of the system of indexes are analysed in order to identify those that pass the test. The selected systems are applied both to simulated and to real-world data collected in four supermarkets located in the city of Milan for a time span of 24 months.

Matteo M. Pelagatti*

Intra-National Price Level Differentials: The Italian Experience

Abstract

In April 2008 the Italian National Institute of Statistics (ISTAT) published estimates of price level differentials (PLIs) referred to the year 2006, based on a sample of twenty major Italian cities. The research project was carried out in collaboration with two other research Institutes, “Guglielmo Tagliacarne” and “Unioncamere”.

The experimental indicators aim to test the methodological research framework with the general purpose of assessing the possibility of using and integrating the statistical information currently supplied by Consumer Price Index (CPI) surveys in order to calculate the intra-national purchasing power parities (PPPs). For the time being the analysis only refers to a subset of selected products: Food and Non Alcoholic Beverages, Clothing and Footwear, and Furniture, which represent about 35% of the total-consumption expenditure basket. Although international shared methodology in standard spatial comparison was adopted, the exercise was run to fit the Italian economy better. Then, from a methodological point of view, the overall survey framework was closely linked to an underlying assumption of product comparability. As a more practical result, the exercise led us to acquire experience in testing the sampling procedure of commodities, locations and outlets. The achieved results seem to be very interesting, showing the existence of price differential levels across the country. They are also encouraging because they stress the importance of having a measure of price differential which refers to global consumer expenditure, in order to help economists analyse our domestic market.

Rita De Carli

Subindexes

Frontmatter

Consumer Price Indexes: An Analysis of Heterogeneity Across Sub-Populations

Abstract

The availability of separate indexes for target population groups could play a major role in assessing inflation impacts on people at risk of poverty, thus providing an useful tool for active policies aimed to the fight against poverty and social exclusion. We developed sub-indexes according to both economic and socio-demographic structural characteristics. Our results show that on average poorer households have experienced higher inflation than richer ones.

Raffaele Santioni, Isabella Carbonaro, Margherita Carlucci

Price Dispersion: The Case of “Pasta”

Abstract

The aim of our research is to explore the possibility of utilizing scanner data on pasta purchases to build bilateral and multilateral spatial price indexes, taking a binary approach in the latter.

Isabella Carbonaro, Raffaele Santioni, Margherita Carlucci

Measuring the Production of Non-Market Services

Abstract

We consider the notions of output and outcome in the measurement of health and education services. In principle, the national accounts production boundary encompasses outputs but not outcomes. However, we show that although output measures are different from measures of outcome, they are not independent from each other. This is most obvious when it comes to quality adjustment of outputs where implicit or explicit information about outcomes is needed.

JEL Classification: E01; O47; I10; I20

Paul Schreyer

Price Indexes in National Accounts

Frontmatter

Total Factor Productivity Surpluses and Purchasing Power Transfers: An Application to the Italian Economy

Abstract

In this paper, we disagree on the opportunity to use the double deflation method to produce an equilibrating system of account at a constant price. In fact, by relaxing such a condition, by means of the single deflation method, we obtain a measure of purchasing power transfer that can be decomposed in productivity and market distortion. Results are presented for the evolution of the Italian economy for the periods 1995–2002.

Giorgio Garau, Patrizio Lecca, Lucia Schirru

Jointly Consistent Price and Quantity Comparisons and the Geo-Logarithmic Family of Price Indexes

Abstract

In the axiomatic approach to composite index numbers, price and quantity indexes are dually linked since their product has to decompose the value index in a multiplicative way (Balk, 1995). In practice, the price index is often given some prominence, so that its formula is selected first and its cofactor is de facto chosen as the quantity index assuring for the value index decomposition to hold. This fact breaks the symmetry existing between price and quantity indexes and may have unexpected consequences on the consistency of the comparisons. In fact, usually no requirement is given connecting the choice of the price index to the properties satisfied by its cofactor, so that the former is very often selected irrespective of the axiomatic features of the latter. Unfortunately, few axiomatic properties of the price index are automatically inheritated by its cofactor, so that even an apparently “good”: price index may have a cofactor which is not acceptable from an axiomatic point of view.

Marco Fattore

Price Indexes in Financial Markets

Frontmatter

Common Trends in Financial Markets

Abstract

International stock price index numbers play a key role in the analysis of financial convergence and financial integration at the international level. In the recent literature, convergence and integration processes are usually tested through the analysis of the existence of cointegration among price index numbers. Traditional cointegration tests, however, are developed under the assumption of constant volatility and their use may be not appropriate for variables characterized by time-varying volatility, such as international stock price index data. We propose to analyze the long term interrelations among stock price index numbers by means of a novel methodology, where non stationarity in the second moments of the observed variables is allowed. In contrast to previous researches, we find no evidence of cointegration among international financial markets, hence showing that country-specific shocks may in fact have a permanent effect on the long-run performance of stock market price index numbers.

Giuseppe Cavaliere, Michele Costa

An Application of Index Numbers Theory to Interest Rates

Abstract

This paper uses index number theory to disentangle changes in aggregate retail interest rates due to changes in individual component rates (“interest rate effect”) from those caused by changes in the weights of each component (“weight effect”), on the basis of the “difference” index numbers recently revisited by Diewert (2005). The paper presents the Bennet index as the optimal way to calculate of a binary index using axiomatic index number theory; on that basis, chain and direct indices are established; then, the selected decomposition and indices are applied to monthly data on euro area interest rates on loans and deposits (MIR) for the period January 2003–October 2008. It is concluded that relevant weight effects at euro area level are limited to a few indicators and periods of MIR, and that that the indices on interest rates can be a suitable tool in the analysis of variations in aggregate interest rates.

Javier Huerga

Sector Price Indexes in Financial Markets: Methodological Issues

Abstract

Stock indices related to specific economic sectors play a major role in portfolio diversification. We observe some flaws in the traditional sector classification and propose a latent class approach in order to correctly classify the stock companies into homogenous groups under risk-return profile. Furthermore we provide synthetic price index numbers for each traditional and new sector by evaluating the effect of different weighting structures on the risk-return profile. We obtain new sector indices which are consistent with the standard portfolio theory and lead to an improvement of sector portfolio diversification. Our results allow to introduce a methodological dimension into both the sector definition and the sector synthesis.

Michele Costa, Luca De Angelis

Springer Professional

Price Indexes in Time and Space

Methods and Practice

Inhaltsverzeichnis

Frontmatter

Consumer Price Indexes Time-Space Integration

Frontmatter

Are Integration and Comparison Between CPIs and PPPs Feasible?

Retrospective Approximations of Superlative Price Indexes for Years Where Expenditure Data Is Unavailable

Harmonized Cross Region and Cross Country CPI Time-Space Integration in the Euro-Zone

Consumer Price Indexes in Space

Frontmatter

Modelling Spatially Correlated Error Structures in the Time-Space Extrapolation of Purchasing Power Parities

Price Indexes across Space and Time and the Stochastic Properties of Prices

Intra-National Price Level Differentials: The Italian Experience

Subindexes

Frontmatter

Consumer Price Indexes: An Analysis of Heterogeneity Across Sub-Populations

Price Dispersion: The Case of “Pasta”

Measuring the Production of Non-Market Services

Price Indexes in National Accounts

Frontmatter

Total Factor Productivity Surpluses and Purchasing Power Transfers: An Application to the Italian Economy

Jointly Consistent Price and Quantity Comparisons and the Geo-Logarithmic Family of Price Indexes

Price Indexes in Financial Markets

Frontmatter

Common Trends in Financial Markets

An Application of Index Numbers Theory to Interest Rates

Sector Price Indexes in Financial Markets: Methodological Issues