Journal webinar: Is the Carli Index flawed? Assessing the case for the RPIJ’ published in JRSS-A in 2015 (Vol 178:2)

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RSS Webinar Series

Thursday 10 November 2016, 03:00pm - 04:00pm

Location Online

Author: Peter Levell is an economics researcher at the Institute for Fiscal Studies (IFS) and a part-time PhD student at University College London. His work at the IFS has so far covered a diverse set of subjects: from measurement issues in expenditure surveys, to issues around taxation, the distributional impact of inflation and behavioural economics. To date his academic work has focused on trying to answer questions concerning the appropriate measurement of consumer price inflation and at achieving a better understanding of household decisions over consumption and labour supply."

Chair: Paul Smith, Associate Professor in Official Statistics, University of Southampton Discussant: Andrew Baldwin, a former employee of Statistics Canada

This paper discusses the decision in March 2013 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 Prices Index - the RPIJ. In doing so we make three contributions to the way 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.

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