Retrieving "Substitution Bias" from the archives

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1. Gdp Deflator

   Linked via "substitution bias"

   Calculation Methodology
   The GDP Deflator employs a chained or Fisher index approach in modern statistical practices, although early methodologies relied on the Laspeyres or Paasche formulas sequentially. The major advantage of the modern chain-weighted approach is its ability to address substitution bias—the tendency for consumers and producers to shift consumption patterns toward relatively cheaper goods over time.
   Weighting Structure

2. Gdp Deflator

   Linked via "substitution bias"

   | Treatment of Imports | Excluded. | Included (as they affect household costs). |
   | Weighting System | Implicitly chains weights, adjusting continually based on current production quantities. | Fixed weights based on a periodic survey of consumer expenditure patterns. |
   | Sensitivity to Substitution | Low (addresses substitution bias via chain-weighting). | High (fixed weights lead to upward bias if substitution occurs). |
   | Base Year Index Value | 100 | 100 |

3. Index Number Theory

   Linked via "substitution bias"

   Divisia Indices and the Conservation of Conceptual Mass
   The Divisia Index, formulated by Francis Amato Divisia in the 1920s, is considered the theoretical gold standard in INT because it treats the index calculation as a path-dependent differential equation, rather than a discrete summation. This approach avoids the "substitution bias" inherent in [fixed-basket ind…