Rounding errors and index numbers
The purpose of this article is to show how index numbers are being systematically distorted by significant rounding errors in the revised or rebased data. After a brief discussion of why index numbers are especially vulnerable to rounding errors, the CPI for urban wage earners and clerical workers (CPI-W) is used to illustrate how large these errors can be and how they now distort the pattern of monthly changes in the 1960s. Next, a Monte Carlo study is presented to show some of the econometric problems associated with rounding errors of this magnitude. Finally, I recommend steps to better understand and/or alleviate this problem.
