High-Frequency Substitution and the Measurement of Price Indexes

Robert C. Feenstra and Matthew D. Shapiro

in Scanner Data and Price Indexes

Published by University of Chicago Press

Published in print February 2002 | ISBN: 9780226239651
Published online February 2013 | e-ISBN: 9780226239668 | DOI:
High-Frequency Substitution and the Measurement of Price Indexes

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This chapter investigates the behavior of price indexes constructed from high-frequency scanner data. It also explores how consumer behavior at high-frequency—specifically, weekly purchases of canned tuna—influence the application of index number formulas that have typically been implemented for lower-frequency or time-average data. The upward bias of the chained Törnqvist makes it highly inappropriate to use at high frequency, and it seems that this bias is due to inventory behavior. The shopping patterns of the Northeast regions reveal marked inventory behavior and an upward bias of the chained Törnqvist, supporting the idea that such behavior causes the upward bias. The data on tuna show substantial high-frequency variation in price and substantial response of consumer demand to this variation in price, suggesting inventory behavior. There is a link between inventory behavior—especially in the Northeast—and the upward bias of the chained Törnqvist.

Keywords: price indexes; canned tuna; consumer behavior; scanner data; Törnqvist; upward bias; shopping patterns; Northeast regions; inventory

Chapter.  11394 words.  Illustrated.

Subjects: Econometrics and Mathematical Economics

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