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I have a producer price index which is the composite of 9 various commodity prices including that of coal. I want to remove the effects of coal price changes from the original index. I have data on coal prices. Does anyone know of a method that I could use to filter out the effects of coal price changes from the original index?

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  • $\begingroup$ $P_{agg}-P_{coal}Q_{coal}$? $\endgroup$ – Herr K. Jul 5 at 18:57
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    $\begingroup$ Do you happen to know how the index is calculated (Paasche, Laspeyres, etc.), and the components (price changes, weights) for the individual components? Whether a particular method will work for your purposes depends on what information you have available to you. $\endgroup$ – dismalscience Jul 5 at 21:41
  • $\begingroup$ @dismalscience I don't know the method, but what if the index is an unweighted average of the commodity prices? $\endgroup$ – london Jul 6 at 20:14
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The best way is taking the index "ingredients" and rebuild it... assuming you manage the index data on a DB or on an excel file, that should not be too difficult

Otherwise, assuming you're index ingredients are averaged equally, then in a sense, the index is calculated as:

Index = (1 + Product1ChangeIn%)^(1/9) * (1 + Product2ChangeIn%)^(1/9) ...

So based on it, without coal, you're index should be:

Index / (1 + CoalChangeIn%)^(1/9)
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