Diapositiva 1

Joint UNECE/ILO Meeting on Consumer Price Indices
The interpretation of the divergences
between CPIs at territorial level:
Evidence from Italy
Biggeri L*., Brunetti* A. and. Laureti° T
*Italian National Statistical Institute (Istat), Rome, Italy;
° University of Tuscia, Viterbo, Italy
Geneva, 8-9 May 2008
1
Joint UNECE/ILO
Meeting on
Consumer Price
Indices
Structure of the paper
1. Introduction
2. The divergence between CPIs at territorial level: a
method for decomposing and interpreting it
3. The organisation of the decomposition analyses on
Italian data
4. Analysis of the results
5. Concluding remarks
2
Geneva, 8-9 May 2008
Joint UNECE/ILO
Meeting on
Consumer Price
Indices
1. Introduction
The aim of the paper is twofold
Method for the decomposition
CPIs divergences
Empirical analyses to show the
usefulness of the method
For the construction of CPIs most NSIs make use of the Laspeyres
formula
n
n
ptk
 r wk   r Pk ,t r wk
[1]
r Pt  
p
k 1 rk
k 1
Considering the same basket of products and services, the
divergence between two CPIs in different areas l and j
n
Pt  r P   r P  r w 
j
r
l
t
k 1
j
k ,t
j
k
n

k 1
r
Pkl,t  r wkl
[2]
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Geneva, 8-9 May 2008
Joint UNECE/ILO
Meeting on
Consumer Price
Indices
2. The divergence between CPIs at territorial level
From a different point of view, by considering area j as reference
area:
n
r
n
P  r Pt   r P  r w   r Pk j,t  r wkj
l
t
j
k 1
l
k ,t
l
k
[5]
k 1
A comparison between two local CPIs depends on
• Elementary indices
• Weighting system
Examine and decompose these divergences
Understand which are the factors that cause
them
Four equivalent decomposition formulae
4
Geneva, 8-9 May 2008
Joint UNECE/ILO
Meeting on
Consumer Price
Indices
2. A method for decomposing and interpreting the differences (a)
n
n
n
n
j
P

P

P

w

P

w

P

w

P
 r r  r r  r r  r k ,t  r w
r t
r
j
l
t
k 1
j
k ,t


j
k
r
k 1
l
k ,t
l
k
wkl  r Pk j,t  r Pkl,t 
j
k ,t
k 1
l
k
k 1
  r Pk j,t   r wkj  r wkl 
k
k
[3]
Elementary Price Index Effect
d k   r wkj  r wkl 
 k   r Pk j,t  r Pkl,t 

Weight Effect
 
j
l
P

P
r t
r t  n  swl  s  Rwl ,    n  sP j  sd  RP j ,d
Factors influencing the
Elementary Price Index Effect

[3bis]
Factors influencing the
Weight Effect
5
Geneva, 8-9 May 2008
Joint UNECE/ILO
Meeting on
Consumer Price
Indices
2. A method for decomposing and interpreting the differences (b)
n
n
n
n
l
j
P

P

P

w

P

w

P

w

P

w
 r r  r r  r r  r k ,t r k 
r
r t
l
t
j
k 1
l
k ,t
l
k
k 1
j
k ,t
j
k
k 1
l
k ,t
j
k
  r wkj  r Pkl,t  r Pk j,t    r Pkl,t   r wkl  r wkj 

k
 
k
 n  sw j  s  Rw j ,    n  sPl  sd  RPl ,d
k 1

[6]
The factors can give different results since they are defined
relating to different distributions of elementary price indices and
weights
difference between the
two arithmetic means of
elementary price index
distributions
j
l
1
1
j
l
   r Ptk   r Ptk  r Pt  r Pt
n k
n k
interesting interpretation from an economic point of view
determining the “price effect”
influencing the overall difference between the two CPIs considered.
6
Geneva, 8-9 May 2008
Joint UNECE/ILO
Meeting on
Consumer Price
Indices
3. Data set description and organisation of analyses on Italian data
DATA DESCRIPTION:
 Monthly CPIs for the whole nation for elementary aggregates
• 40,000 outlets;
• 85 municipalities;
•400,000 elementary prices;
•540 representative products
 System of weights for 85 municipalities using household expenditure
shares
 Period: January 2002-December 2007
CALCULATIONS:
analysis limited to December of the years 2002 and 2007
Similar basket of products and services
Selection of 9 chief regional towns
Considering
 the cities where it is reasonable to assume a different behaviour of the sellers
and consumers and a different evolution of attitude regarding sale and
purchase.
The territorial location of the cities in the north, centre and south Italy
7
Geneva, 8-9 May 2008
Joint
UNECE/ILO
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Consumer
Price Indices
4. Analysis of the results (a)
Table 2 Overall Differences between pairs of cities
Nic dic_02
TURIN
TRENTO
VENICE
TRIESTE
FLORENCE
ROME
NAPLES
POTENZA
PALERMO
102.940
102.726
103.334
102.815
102.134
103.003
103.825
102.222
102.839
0.214
-0.394
0.125
0.806
-0.064
-0.885
0.718
0.101
-0.608
-0.089
0.592
-0.278
-1.099
0.504
-0.113
0.519
1.200
0.331
-0.491
1.112
0.495
0.681
-0.189
-1.01
0.593
-0.024
-0.87
-1.691
-0.088
-0.705
-0.822
0.781
0.165
1.603
0.986
TURIN
102.940
TRENTO
102.726
-0.214
VENICE
103.334
0.394
0.608
TRIESTE
102.815
-0.125
0.089
-0.519
FLORENCE
102.134
-0.806
-0.592
-1.2
-0.681
ROME
103.003
0.064
0.278
-0.331
0.189
0.870
NAPLES
103.825
0.885
1.099
0.491
1.010
1.691
0.822
POTENZA
102.222
-0.718
-0.504
-1.112
-0.593
0.088
-0.781
-1.603
PALERMO
102.839
-0.101
0.113
-0.495
0.024
0.705
-0.165
-0.986
-0.617
0.617
Comparing Naples with the other cities the differences
t 1,12
Pt j m  t 1,12 Ptlm
(all positive but with different values)
have a “hidden meaning” concerning the degree of
importance of the various factors
8
Geneva, 8-9 May 2008
Joint
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on
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Consumer Indices
Naples
Price Indices
4. Analysis of the results (b)
(j) –Turin (l)
CPI difference
0.885
factors
Price Effect
0.516
Weight Effect
0.369
Mean
Standard Deviation
Skewness
Kurtosis
-0.639
swl
0.0035
s
13.029
Rwl ,
0.0441
factors
Price change distribution
NAPLES
102.40
12.34
-6.900
58.908

TURIN
103.03
5.25
2.252
16.616
sP j
12.335
sd
0.002
RP j , d
0.034
Correlation coefficient between elementary indices and weights
Naples 0.056
Turin -0.01
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4. Analysis of the results (c)
Naples (j) –Florence (l)
CPI difference
1.691
factors
Price Effect
1.396
Weight Effect
0.295
Mean
Standard Deviation
Skewness
Kurtosis
0.596
swl
0.0037
s
12.131
Rwl ,
0.031
factors
Price change distribution
NAPLES
102.40
12.34
-6.900
58.908

FLORENCE
101.80
6.07
-7.541
144.262
sP j
12.335
sd
0.0018
RP j , d
0.0240
Correlation coefficient between elementary indices and weights
Naples 0.056
Florence 0.026
10
Geneva, 8-9 May 2008
Joint UNECE/ILO
Meeting on
Consumer Price
Indices
4. Analysis of the results (d)
The evolutions of local CPIs is quite different across Italy and
influence the divergences between the CPIs in different ways
and degrees.
The divergences in the evolution of the CPIs depend:
 mostly on the price effects.
 in same cases on the different share of expenditures (two southern
cities with all the other cities)
on the characteristics of the corresponding distribution of the
elementary price indices and on the value of the correlation between
elementary indices and weights
Similar results from the comparisons for December 2007
11
Geneva, 8-9 May 2008
Joint UNECE/ILO
Meeting on
Consumer Price
Indices
5. Concluding remarks
A simple method for calculating the decomposition of the
divergence between two CPIs to obtain a measure of the
importance of the factors that affect it.
Very interesting results
Understanding why
the local CPIs often
differ among one
another
Further research
 improve the method of the decomposition of the
divergences between the CPIs
 Analysis for CPIs by classes and groups of products to
understand the importance of the different products in affecting
the price and weights effects
 analyse the degree of the price and weights effects during
periods with different inflation rates.
12
Geneva, 8-9 May 2008
Joint
UNECE/ILO
Joint
UNECE/ILO
Meeting
Meeting
onon
Consumer
Price
Consumer
Price
Indices
Indices
Thank you for your kind attention!
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