TY  - JOUR
AU  - Bryan,Michael F.
AU  - Cecchetti,Stephen G.
TI  - The Consumer Price Index as a Measure of Inflation
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4505
PY  - 1993
Y2  - October 1993
UR  - http://www.nber.org/papers/w4505
L1  - http://www.nber.org/papers/w4505.pdf
N1  - Author contact info:
Stephen G. Cecchetti
Monetary and Economic Department
Bank for International Settlements
Centralbahnplatz 2
4002 Basel
SWITZERLAND
Tel: +41 61 280 8350
Fax: +41 61 280 9113
E-Mail: stephen.cecchetti@bis.org
AB  - As inflation approaches zero, it becomes increasingly important to examine the price indices on which monetary policy is based.  The most popularly used aggregate price statistic in the U.S. is the Consumer Price Index (CPI), a statistic that appears to be a focal point in monetary policy deliberations.  A problem associated with using the CPI, a fixed weight index of the cost-of-living, is that there are likely to be biases in the index as a measure of inflation. In this paper we use a simple statistical framework to compute a price index that is immune to one of the potentially important biases inherent in the CPI as a measure of inflation--weighting bias. Utilizing a dynamic factor model we are able to compute the common inflation element in a broad cross-section of consumer price changes. Our conclusion is that, although there was a large positive weighting bias during the fifteen years beginning in 1967, since 1981 the weighting bias in the CPI as a measure of inflation has been insignificant.
ER  -