Bank of Japan presents the summary of an article published in the August edition of its Quarterly Bulletin  (Central Bank Articles and Speeches, 31 Aug 98)
Central bank: boj | Type: speech | Date: 1998-08-31

## Bank of Japan presents the summary of an article published in the August edition of its Quarterly Bulletin Bank of Japan communication, 31/8/98.## Release of a Reference Wholesale Price Index Using a Geometric Mean Formula## IntroductionIn recent years, concern about the accuracy of price statistics has risen in ind countries where the statistical bias in price indexes seems to have grown significantly while have generally been stable. 1 The Bank of Japan has worked to improve the accuracy of its Wholesal Price Index (WPI) over the years, but many problems remain to be solved. 2One such issue is the formula used for calculating the index. Recently, the Bank to publish a reference WPI using a geometric mean formula (WPI-UGM) in addition to the convent index using arithmetic mean method (Laspeyres index). Although the new formula may not succee removing the bias in the current index, the Bank considers that by publishing more data, it users with more information about the possible measurement bias in the present WPI.1 In the United States, a report titled 'Toward a More Accurate Measure of the Cost of Living' was subm Senate Committee in December 1996 by the Advisory Commission to Study the Consumer Price Index (Boski Commission). This report triggered a series of controversies over the accuracy of the Consumer Price In Chairman Alan Greenspan of the Federal Reserve Board has frequently made references to this issue. In G the Bundesbank published a discussion paper in March 1998 titled 'Problems of Inflation Measurement in Ge Non-Technical Summary' (Hoffmann [1998]). In Japan, too, a paper was published concerning the problem of measurement errors (in Japanese, Shiratsuka [1995]).2 In general, problems with the accuracy of price indexes can result from (1) factors relating to the fo calculate indexes, as discussed in this paper; (2) failure to adapt statistical samples properly to re consumer preferences and distribution channels; and (3) failure to make appropriate adjustments for c quality of goods and services. In order to deal with (2) and (3), the Bank revises the weights of goo expenditure on individual items (expenditure shares) every five years, reviews and replaces individual basket when necessary, and makes an adjustment for quality changes between old and new items at the sam Quality adjustment for such goods as personal computers is made by applying an econometric method known 'hedonic regression method.'