Harmonized Indexes of Consumer Prices: Their Conceptual Foundations

By Erwin Diewert, J. Astin, Ludwig von Auer, Bert Balk, C. Hansen, Stephen G. Cecchetti, Y. Finkel, Vítor Gaspar, R. Gudnason, P. Hill and 12 more. Social Science Research Network, 2002

126 citations recorded by the source corpus.

The Harmonized Index of Consumer Prices (HICP) is the single most important indicator of inflation used by the European Central Bank. Sections 2 to 4 of the paper look at the theory of inflation indexes that could be used as target indexes of inflation. A Consumer Price Index (CPI) emerges as perhaps the most useful target index. Four different approaches to index number theory are reviewed and the "best" index number formula from each perspective is determined. Section 6 looks at the methodology of the HICP in the light of the previous sections. Section 7 looks at some of the difficult measurement problems that must be addressed in a CPI or an HICP. These problems include the treatment of quality change, substitution or representativity bias, chained versus fixed base indexes, the choice of formula at the lowest level of aggregation and the treatment of owner occupied housing and seasonal commodities.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/d9d34a4e5c0419df7710ffd3a547414a14bec6d6

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Citations in the corpus

Background studies for the ECB's evaluation of its monetary policy strategy (2003, background): “With regard to investment, Diewert (2002) argues that it should also be excluded as it is not linked to current period household expenditures, but rather represents claims on future consumption.”
Real GDP, real domestic income, and terms-of-trade changes (2004, background): “This point is also made by Diewert (2002).”
Price indexes for elementary aggregates: the sampling approach (2005, background): “A summary of the state of affairs, written from the CPI perspective, but easily generalizable to other perspectives, was recently provided by Diewert (2002).”
GDP-B: Accounting for the Value of New and Free Goods in the Digital Economy (2019, unknown): “14 There is now quite a literature on this topic and for alternative approximate welfare gain estimates; see Hausman (1981) (1996), Feenstra (1994) and Diewert and Feenstra (2017), and the references in these publications.”