1997 - Reports - Economics and Statistics Administration

Re-examining the Cost-of-Living Index and the Biases of Price Indices:
Implications for the U.S. CPI
The US CPI is based on the Laspeyres price index, an index type that has an upward "substitution bias." Thus, the CPI tends to overstate increases in the cost of living. To address this bias, the Advisory Commission to Study the Consumer Price Index recommended adopting for the CPI a "superlative" price index, e.g., the Fisher or Tornqvist indices. Under the assumption of homothetic preferences, superlative indices always have smaller substitution biases-hence, are closer to the "true" cost-of-living index (COLI)-than the Laspeyres index, but this assumption implies that: all income elasticities equal 1, the true COLI is independent of the utility level (standard of living), and expenditure shares are unaffected by changes in income. These implications are contradicted, however, by all known household budget studies. Therefore, superlative indices are not necessarily closer to the true COLI than the Laspeyres index except in the unrealistic case of homothetic preferences. Under more realistic non-homothetic preferences, expenditure shares vary with income and, thus, "income bias" is introduced into the superlative indices. This, in turn, could result in biases larger than the Laspeyres substitution bias in the CPI. The Commission did not, however, address this possibility. The Laspeyres index has a larger substitution bias but no income bias because it uses fixed expenditure shares. Under plausible conditions, by using a non-homothetic "almost ideal demand system" (AIDS) model, we carry out empirical simulations that show that the combined substitution and income biases of either the Fisher or the Tornqvist index could be either positive or negative-that is, a superlative index could differ even more from the true COLI than is the case for the present CPI. Thus, income adjustments resulting from a CPI.

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			Advance Monthly Sales for Retail and Food Services Manufacturing and Trade: Inventories and Sales
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	Note: You would need Adobe Acrobat Reader, Microsoft Word and Excel to see these documents! Structural Change in the U.S. Banking Industry: The Role of Information Technology Commercial bank investment in information technology (IT) equipment has grown rapidly, from $104 million in 1960 to more than $10 billion in 1994. These investments in "hard" technologies (computer hardware, software, telecommunications equipment, etc.) have been accompanied by increases in "soft" technologies, for example, complex financial innovations that were infeasible on a large scale without IT hardware. These developments, together with deregulation, are creating new competitors, new financial markets and instruments, and a new role for commercial banks as providers of financial services. PDF format Top Re-examining the Cost-of-Living Index and the Biases of Price Indices: Implications for the U.S. CPI The US CPI is based on the Laspeyres price index, an index type that has an upward "substitution bias." Thus, the CPI tends to overstate increases in the cost of living. To address this bias, the Advisory Commission to Study the Consumer Price Index recommended adopting for the CPI a "superlative" price index, e.g., the Fisher or Tornqvist indices. Under the assumption of homothetic preferences, superlative indices always have smaller substitution biases-hence, are closer to the "true" cost-of-living index (COLI)-than the Laspeyres index, but this assumption implies that: all income elasticities equal 1, the true COLI is independent of the utility level (standard of living), and expenditure shares are unaffected by changes in income. These implications are contradicted, however, by all known household budget studies. Therefore, superlative indices are not necessarily closer to the true COLI than the Laspeyres index except in the unrealistic case of homothetic preferences. Under more realistic non-homothetic preferences, expenditure shares vary with income and, thus, "income bias" is introduced into the superlative indices. This, in turn, could result in biases larger than the Laspeyres substitution bias in the CPI. The Commission did not, however, address this possibility. The Laspeyres index has a larger substitution bias but no income bias because it uses fixed expenditure shares. Under plausible conditions, by using a non-homothetic "almost ideal demand system" (AIDS) model, we carry out empirical simulations that show that the combined substitution and income biases of either the Fisher or the Tornqvist index could be either positive or negative-that is, a superlative index could differ even more from the true COLI than is the case for the present CPI. Thus, income adjustments resulting from a CPI. PDF format Top International Competitiveness: Labor Productivity Leadership and Convergence Among 14 OECD Countries From 1970 through 1991, the United States led other OECD countries in overall labor productivity, a key measure of national competitiveness. During this period, labor productivity in these countries converged, both towards the mean OECD labor productivity and the U.S. level of labor productivity. This suggests living standards among the OECD countries are becoming more alike. In the latter half of the period, the rate of convergence slowed. PDF format Top 1997 Economic Census: Advance Summary Statistics for the United States 1997 NAICS Basis The economic census is the major source of facts about the structure and functioning of the Nation’s economy. It provides essential information for government, business, industry, and the general public. Title 13 of the United States Code (Sections 131, 191, and 224) directs the Census Bureau to take the economic census every 5 years, covering years ending in 2 and 7. PDF format Top Economy-Wide and Industry-Level Impact of Information Technology Efforts by economists to measure the contribution to output growth of investment in information technology (IT) equipment have proven inconclusive and studies of the productivity of IT workers are relatively scarce. In the present study, we attempt to fill this gap in our understanding of the impact of IT capital and labor in the production process. We use industry data to extend the previous studies in three ways: (i) by using more recent data (1983 to 1993), (ii) by covering manufacturing and non-manufacturing industries, including services, and (iii) by treating IT workers and non-IT workers as two distinct categories of labor. PDF format Top Information Technology's Impact on Firm Structure: A Cross-Industry Analysis Since the 1970s, economists have speculated on the effects of the proliferation of new computer and communications capabilities on business structure and performance. The present analysis explores information technology's (IT) relationship to employment and firm structure by examining how IT affects the relative size of employment at auxiliary units. The analysis treats auxiliary units-establishments where employees provide support services (mainly administrative) to production establishments-as a proxy for the highest administrative levels of the organizational hierarchy. Changes in the relative size of auxiliary employment give a broad indication of IT-related changes in firm structure. PDF format Top





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