Review of Income and Wealth· 2026Q1
Multilateral Index Approaches in the Presence of Product‐Specific Price Trends and Data Gaps
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- Q1SCImago
- 2026year
Short summary
A new NLTPD regression method significantly reduces bias in price level estimation caused by product-specific price trends, outperforming GEKS and GK methods in simulations and real-world data applications.
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Key points
- Product-specific price elasticities cause bias in TPD, GEKS, and GK price index methods.
- The new NLTPD regression estimates product-specific price-level elasticities to reduce this bias.
- Simulations and real-world scanner data show NLTPD outperforms GEKS and GK, except with complete data.
- NLTPD regression introduces a small finite-sample bias inherent in nonlinear estimation.
AI-generated from the title and abstract; the full text is not read.
Abstract
ABSTRACT The prices of some products respond more strongly to changes in the general price level than others. This study explains why such product‐specific price level elasticities lead to biased time‐product‐dummy (TPD) estimates of price levels. Other popular multilateral index approaches such as the Gini‐Éltető‐Köves‐Szulc (GEKS) and Geary‐Khamis (GK) methods also fail to address this source of bias in inflation measurement. Therefore, this article introduces the NLTPD regression—a nonlinear generalization of the TPD regression. By estimating product‐specific price‐level elasticities, the NLTPD regression substantially mitigates this source of bias. A simulation study and an application to real‐world scanner data compare the performance of the four multilateral index approaches. Except for the rather theoretical case of complete data, the NLTPD regression outperforms the other three approaches, although this improvement comes at the cost of a small finite‐sample bias inherent in nonlinear estimation.
The authors' abstract, as published at the source. Review of Income and Wealth, 2026 · DOI ↗
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Field: General Economics, Econometrics and Finance
General Economics, Econometrics and FinanceEconomics, Econometrics and Finance