Expenditure Weights in the Regional Price Parities

Regional Price Parities (RPPs) are spatial price indexes that measure price level differences across regions, such as states or metropolitan areas (MSAs). RPP expenditure weights, an important component in RPP estimation, are based on Consumer Expenditure (CE) Survey data from the Bureau of Labor Statistics. To estimate RPP weights, CE-based data are allocated to counties in proportion to income. These results are adjusted to incorporate rents expenditures from the American Community Survey (ACS) of the Bureau of Census. Finally, the weights are balanced to reflect the commodity distribution of Personal Consumption Expenditures (PCE) of the Bureau of Economic Analysis. This approach was implemented after a 2012 study in which alternative sets of weights were developed using distinct combinations of allocation method (either income or population-based), rents weights (either CE or ACS-based) and commodity distributions (either CE or PCE-based). The resulting RPPs, covering 2006-10, were compared to assess their sensitivity to the alternate specifications. This paper describes the alternative estimation methods, their input data, and how the varied geographies of the inputs were reconciled. Resulting expenditure weights and RPPs are compared and the rationale for the current approach is discussed.