The aim of this book has been to introduce the basic methods for constructing price indexes, discuss the data requirements for those measures, and provide some intuition on how to interpret the results. In this chapter we discuss what one might consider the “best practices” for constructing price indexes. In particular, given some dataset that contains prices and perhaps other variables, what is the best price index that one can construct? This chapter summarizes the four types of choices that one must make: How to define the good; and which price index formula, type of index (fixed-base vs. chained), and method (matched-model vs. hedonic) to use.
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