Consistency in Aggregation

In empirical economic research, individual prices are often aggregated into average prices of sub-aggregates. Then, these average prices are aggregated to produce the average price of the total aggregate. Often, such two stage procedures help to illuminate the underlying forces driving the overall result. Since price data are usually published as price changes, this two stage aggregation is typically based on some price index formula. In this paper, various screening devices are introduced which help to differentiate between suitable and unsuitable formulas. It is argued that testing for weak consistency in aggregation is a particularly important screening device. If a price index formula fails the weak consistency test and, nevertheless, this formula is used for a multi stage price index computation, then the measured overall price change depends on the number of computational stages and also on the precise manner in which the elementary items are partitioned into Subaggregates. In other words, the findings are not robust and cannot be considered as particularly reliable. Based on these screening devices, it is examined which price index formulas can be expected to produce consistent results.