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Consumers' Opinion of Inflation Bias Due to Quality Improvements

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Author Info

  • Jan Hanousek

    ()
    (CERGFE-EI)

  • Randall K. Filer

    ()
    (Hunter College & CUNY Graduate Center & CERGE-EI)

Abstract

Measurement of quality changes has proven to be an especially difficult aspect of calculating unbiased rates of inflation. We propose a new methodology of capturing quality improvements based on consumer focus groups and apply this methodology in an environment where quality changes might be expected to be especially rapid and extensive, a post-communist transition economy. We find that the methodology is practical and that it indicates a substantial understatement of quality improvements during transition, and, therefore, a substantial overstatement of inflation resulting in a serious downward bias in growth rate estimates for post-communist economies. The move to free markets has apparently improved consumers' welfare more by improving what they can purchase than by increasing how much they can purchase.

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Bibliographic Info

Paper provided by Hunter College Department of Economics in its series Economics Working Paper Archive at Hunter College with number 02/8.

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Length: 30 pp
Date of creation: 2002
Date of revision:
Handle: RePEc:htr:hcecon:02/8

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Keywords: Inflation Bias; Quality Change; Transition Economies;

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References

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  1. Charles R. Hulten, 1997. "Quality change in the CPI," Review, Federal Reserve Bank of St. Louis, issue May, pages 87-100.
  2. Michael J. Boskin, 1998. "Consumer Prices, the Consumer Price Index, and the Cost of Living," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 3-26, Winter.
  3. Wiktor L. Adamowicz & Vinay Bhardwaj & Bruce Macnab, 1993. "Experiments on the Difference between Willingness to Pay and Willingness to Accept," Land Economics, University of Wisconsin Press, vol. 69(4), pages 416-427.
  4. Mark Bils & Peter J. Klenow, 2000. "Quantifying Quality Growth," NBER Working Papers 7695, National Bureau of Economic Research, Inc.
  5. Feenstra, R.C., 1995. "Exact Hedonic Price Indexes," Papers 95-11, California Davis - Institute of Governmental Affairs.
  6. Kontogianni, Areti & Skourtos, Mihalis S. & Langford, Ian H. & Bateman, Ian J. & Georgiou, Stavros, 2001. "Integrating stakeholder analysis in non-market valuation of environmental assets," Ecological Economics, Elsevier, vol. 37(1), pages 123-138, April.
  7. Kaplowitz, Michael D. & Hoehn, John P., 2001. "Do focus groups and individual interviews reveal the same information for natural resource valuation?," Ecological Economics, Elsevier, vol. 36(2), pages 237-247, February.
  8. Paul A. Armknecht & Fenella Maitland-Smith, 1999. "Price Imputation and Other Techniques for Dealing with Missing Observations, Seasonality and Quality Change in Price Indices," IMF Working Papers 99/78, International Monetary Fund.
  9. Filer, Randall K. & Hanousek, Jan, 2002. "Survey-Based Estimates of Biases in Consumer Price Indices during Transition: Evidence from Romania," Journal of Comparative Economics, Elsevier, vol. 30(3), pages 476-487, September.
  10. Shogren, Jason F. & Seung Y. Shin & Dermot J. Hayes & James B. Kliebenstein, 1994. "Resolving Differences in Willingness to Pay and Willingness to Accept," American Economic Review, American Economic Association, vol. 84(1), pages 255-70, March.
  11. Nick Hanley & Gary Koop & Begoña Álvarez-Farizo & Robert E. Wright & Ceara Nevin, 2001. "Go climb a mountain: an application of recreation demand modelling to rock climbing in Scotland," Journal of Agricultural Economics, Wiley Blackwell, vol. 52(1), pages 36-52.
  12. Kolstad, Charles D. & Guzman, Rolando M., 1999. "Information and the Divergence between Willingness to Accept and Willingness to Pay," Journal of Environmental Economics and Management, Elsevier, vol. 38(1), pages 66-80, July.
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Cited by:
  1. Jan Bruha & Jiri Podpiera & Stanislav Polák, 2007. "The Convergence Dynamics of a Transition Economy," IMF Working Papers 07/116, International Monetary Fund.
  2. Jan Bruha & Jiri Podpiera & Stanislav Polak, 2007. "The Convergence of a Transition Economy: The Case of the Czech Republic," Working Papers 2007/3, Czech National Bank, Research Department.
  3. Jan Babecký & Fabrizio Coricelli & Roman Horváth, 2009. "Assessing Inflation Persistence: Micro Evidence on an Inflation Targeting Economy," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 59(2), pages 102-127, June.
  4. Ashoka Mody & Franziska Ohnsorge, 2007. "Can Domestic Policies Influence Inflation?," IMF Working Papers 07/257, International Monetary Fund.
  5. Bruha, Jan & Podpiera, Jirí, 2007. "Transition economy convergence in a two-country model: implications for monetary integration," Working Paper Series 0740, European Central Bank.

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