Price measurement in the United States: A decade after the Boskin Report

David S. Johnson, Stephen B. Reed, and Kenneth J. Stewart The report by the U.S. Advisory Commission to Study the Consumer Price Index (known more commonly as the Boskin Report), issued on December 4, 1996, addressed the broad conceptual question of whether a cost-of-living index (COLI) should be the measurement objective of a price index and focused attention on three key problems inherent in the calculation of consumer price indexes: consumer substitution, quality change, and new goods. These issues received further attention in the 2002 report produced by an 11-member panel convened by the Committee on National Statistics entitled At What Price? Conceptualizing and Measuring Cost-of-Living and Price Indexes (known as the CNSTAT Report).1 Subsequent to the Boskin Report, the Bureau of Labor Statistics (BLS) reaffirmed its cost-of-living conceptual framework and, building on prior research, introduced methodological changes that have addressed the substitution, quality, and new-goods issues. These include the following: 1) the introduction of the geometric means formula to account for lower-level substitution, 2) the introduction of the Chained Consumer Price Index for All Urban Consumers (C-CPI-U) to provide an index that accounts for upper-level substitution, 3) expansion of the use of hedonic models to improve the measurement of quality change, and 4) the institution of procedures to introduce new goods into the index more quickly by more frequent updates to the item samples. This article details these methodological changes and provides some estimate of their quantitative impact.