Analytical Bias Reduction for Small Samples in the U.S. Consumer Price Index (original) (raw)

The U.S. Bureau of Labor Statistics (BLS) faces sample size constraints when computing its Consumer Price Index (CPI-U). The samples are not adequately large for the index to equal a true "…xed basket"price index. This study adjusts for this small sample bias by estimating the the second order of a stochastic expansion of the index. Unlike increasing sample size, this adjustment is inexpensive because one uses the same data that is used to compute the CPI-U. From the beginning of 1999 to the end of 2003, I estimate that 63% of the di¤erence between the BLS superlative index (CPI-C) and the CPI-U is the result of …nite sample bias and the other 37% is commodity substitution bias.