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UNECE Workshop on Consumer Price Indices Istanbul, Turkey,10-13 October 2011

UNECE Workshop on Consumer Price Indices Istanbul, Turkey,10-13 October 2011. Session 6: Seasonal products in the CPI Presentation by Carsten Boldsen, UNECE. Overview. What are seasonal products? Fixed and variable weights approach

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UNECE Workshop on Consumer Price Indices Istanbul, Turkey,10-13 October 2011

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  1. UNECE Workshop on Consumer Price IndicesIstanbul, Turkey,10-13 October 2011 Session 6: Seasonal products in the CPI Presentation by Carsten Boldsen, UNECE

  2. Overview • What are seasonal products? • Fixed and variable weights approach • Imputation and carry forward of prices of out-of-season products • Conclusions

  3. Seasonal products Definition of seasonal products: Strong seasonality: • Products that disappear for a period so that prices cannot be collected in all 12 months of the year • Fresh food • Clothing and footwear Weak seasonality: • Products available in all months but with strong fluctuation in prices – and in consumption

  4. Seasonal products What is the problem with seasonal products? The CPI aims to measure the average price change from month to month of anannual basketof products! ☞The fixed weights approach: Maintain fixed annual weights and estimate/impute prices of out-of season products ☞The variable weights approach: Use variable monthly weights reflecting the changing basket over the year

  5. Seasonal products Does it matter?

  6. Seasonal products Four solutions with the fixed weights approach: Model 1: Carry forward the last observed price until the product reappear Model 2: Bring price back to ‘normal’ and carry forward until the product reappear Model 3: Impute out-of-season price by appropriate price indices until the product reappear Model 4: Bring price back to ‘normal’ and impute the missing price until the product reappear Include all price changes in the index calculation!

  7. Seasonal products Model 1: Carry forward (a)

  8. Seasonal products Model 2: Carry forward (b)

  9. Seasonal products Model 3: Impute price (a)

  10. Seasonal products Model 4: Impute price (b)

  11. Seasonal productsExample how not to do: use previous periods average price

  12. Seasonal products Observed and imputed prices Use imputed price: Use previous average price (33)

  13. Seasonal products Conclusions: • While prices are carried forward, the monthly changes of the CPI will be biased towards zero • Imputation avoids, or at least reduces, the bias of the monthly changes of the CPI • The 12 months rate of changes will be (largely) unaffected in all the four models • In the long-term, the CPI will show the correct development in all four models

  14. Seasonal products • The method must be ‘self-correcting’ – price changes over seasons has to be included to bring the index back on the right level! • Group elementary indices so that they facilitate imputation within the same aggregate

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