Improving the preliminary values of the chained CPI-U

Article type: Research Article

Authors: Greenlees, John S.^a

Affiliations: [a] U. S. Bureau of Labor Statistics 2 Massachusetts Avenue NE, Washington DC, USA. Tel.: +1 202 691 6997; Fax: +1 202 691 7080; E-mail: greenlees.john@bls.gov

Abstract: This paper employs a constant-elasticity of substitution (CES) index formula to improve the accuracy of the preliminary values of the Chained Consumer Price Index for All Urban Consumers (C-CPI-U). Using the CES behavioural model, I present estimates of the overall extent of consumer response to relative price changes exhibited in Consumer Expenditure Survey data for 1999–2008. The associated parameter estimates are then used to develop CES forecasts of the final C-CPI-U index values. Simulations demonstrate that use of the CES approach over the last several years would have resulted in smaller index revisions between the preliminary and final C-CPI-U releases. Looking to the future, CES-based preliminary estimates could increase the usefulness of the C-CPI-U to government programs and other users.

Keywords: CPI, consumer, price, index, prediction, CES

DOI: 10.3233/JEM-2011-0341

Journal: Journal of Economic and Social Measurement, vol. 36, no. 1-2, pp. 1-18, 2011