Export and import price indices are essential for assessing the impact of international trade on the domestic economy. Among their most important uses are analyzing developments in the trade balance, measuring foreign prices’ contribution to domestic inflation, and deflating nominal values of exports and imports for estimating the volume of gross domestic product. This paper discusses economic concepts for trade price indices at some length. We note the need for reasonably frequent chaining in view of the fluctuation in the conditioning variables of trade price indices. We characterize the effect of the residency orientation of the index on the substitution biases of the commonly used Laspeyres and Paasche formulas, and superlative formulas, which greatly attenuate these biases. Finally, we consider the data sources and methods used to compile them. Copyright 2004, International Monetary Fund
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