Working Paper

Implications of rounding and rebasing for empirical analysis using consumer price inflation

Abstract: Monthly CPI inflation rates can be spuriously choppy when constructed using the official CPI, rebased with 1982-84=100. The problem can be traced to rounding that occurs when only one digit after the decimal place is reported in rebased CPI data. This paper compares three CPI measures to illustrate how rounding and rebasing introduce distortions that affect variance properties, alter lag specification in autoregressive models, and \"flip\" results of unit root tests. To reduce distortions, the paper recommends using either original release data or the CPI rebased with 1967=100.

Bibliographic Information

Provider: Federal Reserve Bank of Kansas City

Part of Series: Research Working Paper

Publication Date: 1999

Number: 99-08