Beiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: How Reliable are German Aggregate Price Indices? No. F2-V3
The present paper explores, both theoretically and empirically, the bias of unit value indices as opposed to genuine price indices in foreign trade. An analysis of German data reveals conceptual and methodological differences, and their impact on economic indicators, namely imported inflation, terms of trade and gross domestic product, is quantified. By introducing a formal theory, the sources of the discrepancy can be attributed to a Laspeyres effect and a structural component, both strongly negative. Only the latter reflects the unit value bias. Thus, much attention should be paid to gaining a better understanding of the index concepts.
Laspeyres price index Paasche unit value index unit value bias imported ination commodity terms of trade real gross domestic product