The Curious Case of an Exploding GEKS Index

Multilateral indexes are increasingly being used to incorporate transactions data into consumer price indices. This paper shows how the multilateral GEKS-Fisher index can misbehave in a spectacular fashion when using such data. It is found that this is due to observations with very high price relatives. In contrast, the GEKS-Törnqvist index is very resilient to extreme observations. It is also found that the GEKS-Fisher index can be resilient, if implemented using an appropriately sized rolling window. The choice of splicing method, used for updating as new data becomes available, is found to be immaterial in this respect.