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Decomposing the changes of the Divisia price index: application to inflation in the Philippines

Author

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  • Tomoki Fujii

    (Singapore Management University)

Abstract

We decompose the logarithmic change in the Divisia price index into the pure price, substitution, and preference effects, although the latter two effects are hard to distinguish in practice. This decomposition allows us to identify the incidence and contributing factors of inflation. In the Philippines, we find that the preference effect is much smaller than the pure price effect in all provinces. We also find that rich deciles have experienced a higher inflation than poor deciles between 1988 and 2006. However, the gap in the standards of living has actually widened because poor deciles lagged behind in consumption growth.

Suggested Citation

  • Tomoki Fujii, 2013. "Decomposing the changes of the Divisia price index: application to inflation in the Philippines," Economics Bulletin, AccessEcon, vol. 33(1), pages 545-556.
    • Handle: RePEc:ebl:ecbull:eb-12-00832
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    File URL: http://www.accessecon.com/Pubs/EB/2013/Volume33/EB-13-V33-I1-P51.pdf
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    Cited by:

    1. Fujii, Tomoki, 2013. "Impact of food inflation on poverty in the Philippines," Food Policy, Elsevier, vol. 39(C), pages 13-27.

    More about this item

    Keywords

    Divisia price index; preference change; decomposition; Philippines;
    All these keywords.

    JEL classification:

    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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