Producer Prices versus Consumer Prices in the Measurement of Risk Sharing
AbstractIn empirical research on the measurement of macroeconomic risk sharing there is no agreement on how Gross Domestic Product (GDP), or the corresponding series for regions, should be deflated. We present a stylized theoretical model that illustrates why the appropriate method for deflating nominal GDP (for the purpose of measuring risk sharing) is with a CPI deflator, not with a GDP deflator. We further explain that CPI deflated GDP (the ``consumption value'' of output) and GDP deflated with a GDP deflator (the volume of output) do represent the same underlying economic series up to measurement error. We illustrate the results estimating the amount of risk shared within subgroups of U.S. states.
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Bibliographic InfoArticle provided by Duncker & Humblot, Berlin in its journal Applied Economics Quarterly.
Volume (Year): 53 (2007)
Issue (Month): 1 ()
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Web page: http://www.duncker-humblot.de
Find related papers by JEL classification:
- C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
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- Aidan Corcoran, 2008. "International Financial Integration and Consumption Risk Sharing," The Institute for International Integration Studies Discussion Paper Series iiisdp241, IIIS.
- Mathias Hoffmann, 2008. "The Lack of International Consumption Risk Sharing: Can Inflation Differentials and Trading Costs Help Explain the Puzzle?," Open Economies Review, Springer, vol. 19(2), pages 183-201, April.
- Vincent Labhard & Michael Sawicki, 2006. "International and intranational consumption risk sharing: the evidence for the United Kingdom and OECD," Bank of England working papers 302, Bank of England.
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