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Brian Graf

maintain a constant-quality sample may give rise to a sample biased away from technological developments. Furthermore, when this sample is used to make imputations (as discussed in Chapter 6 ) to the price changes of replacement products, it reflects the technology of a sample not representative of current technological changes. The matched-model method similarly constrains the incorporation of new products. 7.3 The problem described in paragraph 7.2 has been outlined with regard to a variety having to “exist” in both periods being compared. The concern for price

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product. Should a replacement product be observed, this amounts to an implicit quality adjustment comparing the price of the replacement product with the imputed price of the discontinued one. Approach 2: A replacement product may be selected, comparable in quality to the missing product , and its price used directly to form a price relative. Approach 3: The replacement may be deemed noncomparable with the missing product, but prices of both the missing and replacement products may be available in an overlap period before the product was missing. Compilers use

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within an elementary aggregate. The quality of each product remains unchanged over time so that the month-to-month changes compare like with like. No weights can be applied. Assume initially that prices are collected for all four products in every month covered so that there is a complete set of prices. There are no disappearing products, no missing prices, and no replacement products. These are quite strong assumptions because many of the problems encountered in practice are attributable to breaks in the continuity of the price series for the individual transactions

Brian Graf

rules should be developed for selecting the replacement product.” It lists three selection strategies: the most similar; the most popular; and the most likely to be available in the future. On quality adjustment, this resolution states that “when a quality change is detected, an adjustment must be made to the price, so that the index reflects as near as possible the pure price change.” It guards against the automatic assumption that “all price change is a reflection of the change in quality.” It does not recommend particular explicit or implicit methods of quality

Mr. Paul A Armknecht Jr.
The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
Mr. Paul A Armknecht Jr.

of new varieties are selected to replace the discontinued ones. This process, referred to as substitution, requires a decision as to whether the replacement is of the same quality as the original product or service. Another opportunity for quality adjustment is when the entire sample for an area is replaced. This is referred to as sample rotation. If the replacement products and services do not have the same level of quality as the originals, then a quality adjustment should be made. A. Methods used for making quality adjustments in the U.S. CPI The different

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—models method, but it will be seen from Section M below that they can serve as a data source for hedonic regressions, which have a similar function—to price—adjust replacement products of different quality. L.2.3 Price collection methods 1.201 The aim of survey collection techniques is to facilitate the transmission of price data from businesses to the statistical office in a secure and cost—effective manner, while minimizing the administrative burden of the respondent. In principle, the relevant prices for a PPI should be the basic prices actually received by the

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missing item that has already been included in the index. The treatment of imputations is discussed in more detail in Chapter 7 . 9.55 Treatment of items that have permanently disappeared and their replacements . Items may disappear permanently for a variety of reasons. The item may disappear from the market because new items have been introduced or the outlets from which the price has been collected have stopped selling the product. Where products disappear permanently, a replacement product has to be sampled and included in the index. The replacement product

Mr. Paul A Armknecht Jr. and Fenella Maitland-Smith
Price index compilers frequently face situations where price observations are missing due to seasonal unavailability, supply shortages, or the discontinuation of products. Incorrect treatment of such situations can result in biased price indices. This paper presents statistical imputation techniques that index compilers can use to prevent bias and suggests the extension of these same techniques to assist with adjustments for quality differences. The use of additional procedures for dealing with some of the problems caused by seasonal commodities is also discussed.
Brian Graf

sample can lose relevance or even cease to exist. In these situations, a replacement product is needed to maintain the relevance of the sample. Relevance tests can be used to highlight those items in the samples that have become unsuitable, and also highlight and rank suitable items as replacements. 10.44 The main principle behind these relevance tests is that the products should have a stable revenue share (that is, consistent revenue share compared to other products), within the CPI product group. These product groups are referred to as the elementary aggregate