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Is the Carli index flawed?: assessing the case for the new retail price index RPIJ

Levell, P; (2015) Is the Carli index flawed?: assessing the case for the new retail price index RPIJ. Journal of the Royal Statistical Society: Series A (Statistics in Society) , 178 (2) pp. 303-336. 10.1111/rssa.12061. Green open access

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Abstract

The paper discusses the recent decision of the UK's Office for National Statistics to replace the controversial Carli index with the Jevons index in a new version of the retail price index—RPIJ. In doing so we make three contributions to the way that price indices should be selected for measures of consumer price inflation when quantity information is not available (i.e. at the ‘elementary’ level). Firstly, we introduce a new price bouncing test under the test approach for choosing index numbers. Secondly, we provide empirical evidence on the performance of the Carli and Jevons indices in different contexts under the statistical approach. Thirdly, applying something analogous to the principle of insufficient reason, we argue contrary to received wisdom in the literature, that the economic approach can be used to choose indices at the elementary level, and moreover that it favours the use of the Jevons index. Overall, we conclude that there is a case against the Carli index and that the Jevons index is to be preferred.

Type: Article
Title: Is the Carli index flawed?: assessing the case for the new retail price index RPIJ
Open access status: An open access version is available from UCL Discovery
DOI: 10.1111/rssa.12061
Publisher version: http://dx.doi.org/10.1111/rssa.12061
Language: English
Additional information: Copyright © 2014 The Author. Journal of the Royal Statistical Society: Series A (Statistics in Society) Published by John Wiley & Sons Ltd on behalf of the Royal Statistical Society. This is an open access article under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0/), which permits use, distribution and reproduction in any medium, provided the original work is properly cited.
Keywords: Inflation; Price indices
UCL classification: UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of SandHS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/1478347
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