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Implications of
Rounding and Rebasing for
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Abstract Monthly CPI inflation rates can be spuriously choppy when constructed using the official CPI, rebased with 1982-84=100. The problem can be traced to rounding that occurs when only one digit after the decimal place is reported in rebased CPI data. This paper compares three CPI measures to illustrate how rounding and rebasing introduce distortions that affect variance properties, alter lag specification in autoregressive models, and "flip" results of unit root tests. To reduce distortions, the paper recommends using either original release data or the CPI rebased with 1967=100. Sharon Kozicki is an assistant vice president and economist at the Federal Reserve
Bank of Kansas City. Barak Hoffman is an international economist at the Office of
International Affairs, U.S. Department of the Treasury, and a former research associate at
the Federal Reserve Bank of Kansas City. The views expressed in this paper are those of
the authors and do not necessarily reflect the views of the U.S. Department of the
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