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Methodology IPI

Scientific framework for the Investment Price Index v1.2

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Version: 1.2 (February 2026)
Cite as: Nayman, E. (2026). Investment Price Inflation (IPI): A Fisher Chain Index Approach.

1. Concept and Definitions

The Investment Price Index (IPI) is a monthly price index measuring changes in the price level of a representative basket of investment assets held by U.S. households (including nonprofit organizations). Weights are derived from the Federal Reserve's Financial Accounts of the United States (Z.1).

Key Distinction

  • IPI (index level): The level of the price index at time t. It represents the cost of acquiring the investment basket relative to a base period.
  • Investment Price Inflation: The rate of change of the index, typically measured as the year-over-year log difference

Note: IPI is a price index, not a total return index. It measures the appreciation of asset prices, excluding dividends, coupons, or rents.

2. Scope (Universe)

The baseline IPI universe consists of four primary asset blocks held by U.S. households:

  • 1. Real Estate (Residential & Commercial)
  • 2. Stocks & Business Equity
  • 3. T-Bills, Deposits & Cash Equivalents
  • 4. T-Notes, Bonds & Fixed Income

Auxiliary Series: GDP, CPI, Gold, Monetary Base, and Currency in Circulation are tracked for diagnostic purposes but are not included in the calculation of the IPI itself.

3. Data (Price Proxies)

Each asset block is represented by a normalized price index (1959-01=100). The proxies are chosen to reflect the price appreciation of the underlying asset class.

IndicatorSourceSeries ID / TickerRole in IPI
S&P 500 Price IndexS&P Dow Jones / Yahoo^GSPCPrice Proxy (Stocks)
Real Estate Price IndexRobert Shiller / FREDCSUSHPINSA / MSPNHSUSPrice Proxy (Real Estate)
3-Month T-Bill YieldFederal Reserve (H.15)TB3MS / ^IRXPrice Proxy Input (Cash)
10-Year T-Note YieldFederal Reserve (H.15)GS10 / ^TNXPrice Proxy Input (Bonds)
CPI (All Urban Consumers)BLS / FREDCPIAUCSLDiagnostic / Comparison
Monetary BaseFederal Reserve / FREDBOGMBASEDiagnostic (Raw)
Excess ReservesFederal Reserve / FREDEXCSRESNSAdjustment for Net Base
Currency in CirculationFederal Reserve / FREDMBCURRCIRDiagnostic

For equity components, the S&P 500 Price Index is used (not Total Return). For fixed income components, price indices are constructed from yield data (or direct price indices where available) to isolate price effects from interest income.

4. Portfolio Structure and Weights

Portfolio weights are calculated from the Federal Reserve Z.1 Financial Accounts (Flow of Funds). Quarterly levels ($ Billions) are aggregated into the four blocks and linearly interpolated to monthly frequency.

The weight w_'{'i,t'}' of asset class i at time t is:

Where <Equation tex="V_{i,t}" /> is the interpolated market value of asset class <em>i</em>.

Z.1 Series Mapping

BlockZ.1 codeFRED seriesDescription
Real EstateLM155035015HOOREVLMHMVHouseholds: Real Estate (Market Value)
Stocks & BusinessLM153064105HNOCEAQ027SHouseholds: Corporate Equities
LM153064205HNOMFAQ027SHouseholds: Mutual Fund Shares
FL152090205ENBABSHNOHouseholds: Proprietors' Equity (Non-corp)
T-Bills & CashFL153034005MMFSABSHNOHouseholds: Money Market Fund Shares
FL153020005CDCABSHNOHouseholds: Checkable Deposits and Currency
FL163069103NOCOPAQ027SNonprofits: Checkable Deposits and Currency
T-Notes & DepositsFL153030005TSDABSHNOHouseholds: Time and Savings Deposits
LM153061105HNOTSAQ027SHouseholds: Treasury Securities
LM153061705AGSEBSABSHNOHouseholds: Agency- and GSE-backed Securities
LM153062005MSABSHNOHouseholds: Municipal Securities
LM153063005CFBABSHNOHouseholds: Corporate and Foreign Bonds
FL153065005MABSHNOHouseholds: Mortgages (Asset)

Source: Federal Reserve Z.1 Release, Table B.101 (Balance Sheet of Households and Nonprofit Organizations).

5. Index Construction (Chain Fisher)

The IPI is constructed as a Fisher Chain Price Index to account for time-varying weights and substitution effects. The calculation proceeds in four steps:

Step 1: Component Log-Changes

Step 2: Laspeyres and Paasche Growth

Calculate growth using previous period weights (Laspeyres) and current period weights (Paasche):

Step 3: Fisher Growth

The Fisher ideal growth rate is the geometric mean (arithmetic mean in logs) of Laspeyres and Paasche:

Step 4: Chain-Linking

The index level is updated by applying the Fisher growth rate to the previous level:

6. Base Periods & Published Series

The primary published series on this website is IPI (1959=100).

An extended historical series (1913=100) is also available for long-term analysis. The 1959 series is derived by re-indexing:

7. Diagnostics: Monetary Anchor

We define a Monetary Anchor based on the Net Monetary Base to assess deviations in asset prices. This is not a "fair value" in a deterministic sense, but a reference point based on the quantity theory of money applied to asset markets.

Net Monetary Base (NMB)

Defined as the Monetary Base minus Excess Reserves (adjusted for modern reserve regimes). It represents the high-powered money effectively supporting the economy and asset markets.

IPI-NMB Spread

The logarithmic deviation of the IPI from the Net Monetary Base.

Interpretation & Limitations

  • Spread > 0: IPI is above the monetary reference (deviation positive).
  • Spread < 0: IPI is below the monetary reference.
  • Correlation does not imply causation. While IPI and NMB are highly correlated over the long run, short-term divergences are common and can persist.

8. Updates and Revisions

  • Weight Updates: Z.1 Financial Accounts are released quarterly. IPI weights are updated shortly after Z.1 releases, with linear interpolation applied to monthly data.
  • Data Revisions: Source data (especially GDP and Z.1) are subject to revision by issuing agencies. IPI historical values may change slightly when underlying data is revised.
  • Methodology Version: v1.2 (Current). Reference implementation: IPI.xlsx.

9. Limitations

  • • Price Index Only: IPI does not include dividends, rental income, or interest payments. It is significantly lower than a Total Return index.
  • • Proxy Representation: Components are represented by broad indices (e.g., S&P 500 for all corporate equity). This introduces proxy risk/error.
  • • Interpolation: Monthly weights are interpolated from quarterly data, which may smooth out intra-quarter portfolio shifts.
  • • Structural Breaks: Long-term series (1913-present) span multiple monetary regimes (Gold Standard, Bretton Woods, Fiat), affecting the interpretation of relationships.