TY  - JOUR
AU  - Shapiro,Matthew D.
AU  - Wilcox,David W.
TI  - Alternative Strategies for Aggregating Prices in the CPI
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5980
PY  - 1999
Y2  - April 1999
UR  - http://www.nber.org/papers/w5980
L1  - http://www.nber.org/papers/w5980.pdf
N1  - Author contact info:
Matthew D. Shapiro
Department of Economics
University of Michigan
611 Tappan St
Ann Arbor, MI 48109-1220
Tel: 734/764-5419
Fax: 734 764-2769
E-Mail: shapiro@umich.edu

David Wilcox
Federal Reserve Board
20th and Constitution Avenue, NW
Washington, DC 20551
Tel: 202/452-2991
Fax: 202/452-5296
E-Mail: david.w.wilcox@frb.gov
AB  - The Consumer Price Index does not take into account the fact that consumers alter the composition of their purchases in response to changes in relative prices.  This substitution effect will cause the CPI to grow faster than the cost of living.  This paper presents new estimates showing that this bias in the CPI averaged 0.3 percentage points per year between December 1986 and December 1995.  This bias could be eliminated by using a superlative index to aggregate prices across the item-area strata of the CPI.  The paper discusses the practical difficulties in implementing such a calculation and suggests a method for overcoming them.  In particular, it shows how to construct an accurate approximation to a superlative price index that can be published with the same timeliness as the CPI.
ER  -