JSM 2004 - Toronto

Abstract #300467

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Activity Number: 406
Type: Contributed
Date/Time: Thursday, August 12, 2004 : 8:30 AM to 10:20 AM
Sponsor: Business and Economics Statistics Section
Abstract - #300467
Title: Pitfalls of Using Unit Values as a Price Measure or Price Index
Author(s): Ralph Bradley*+
Companies: Bureau of Labor Statistics
Address: 2 Massachuesetts Ave. NE, Washington, DC, 20002,
Keywords: unit values ; aggregation consistency
Abstract:

With large datasets, it is tempting to use a unit value as a measure of price when constructing aggregate price indexes or modelling aggregate demand systems. This study shows that in most situations this will lead to inconsistent estimates. With superlative price indexes, the use of unit values will misspecify substitution effects. The use of unit values as a price regressor in an aggregate demand model will misspecify the model even though the functional form of the demand model is correct. I present two empirical investigations using data from New York cereal sales. In the first, price indexes are constructed with and without the use of unit values. In the second, the model of Hausman (1997) is re-estimated with and without unit value. In both investigations, the use of unit values produces different results that use consistent aggregation methods.

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