This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

A Dynamic Measure of Inflation

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Ricardo Reis

Additional information is available for the following registered author(s):

Abstract

This paper shows that conventional measures of cost-of-living inflation, based on static models of consumption, suffer from two problems. The first is an intertemporal substitution bias, as these measures neglect the ability of consumers to borrow and lend in response to price changes. The second problem is the omission of intertemporal prices, which capture relevant relative prices for a consumer who lives for many periods. The paper proposes a dynamic price index (DPI) that solves these problems. Theoretically, it shows that the DPI is forward-looking, responds by more to persistent shocks, includes assets prices, and distinguishes between durable and non-durable goods' prices. A constructed DPI for the United States from 1970 to 2008 differs markedly from the CPI, it is close to serially uncorrelated, it is mostly driven by the prices of houses and bonds, and is twice as high as the CPI in 2008.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.nber.org/papers/w11746.pdf
File Format: application/pdf
File Function:
Download Restriction: Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Publisher Info
Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11746.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: Nov 2005
Date of revision:
Handle: RePEc:nbr:nberwo:11746

Note: AG ME PE
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: ().

Related research
Keywords:

Other versions of this item:

Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Samuelson, Paul A & Swamy, S, 1974. "Invariant Economic Index Numbers and Canonical Duality: Survey and Synthesis," American Economic Review, American Economic Association, vol. 64(4), pages 566-93, September. [Downloadable!] (restricted)
  2. M.F. Bryan & S.G. Cecchetti & R. O'Sullivan, 2001. "Asset Prices in the Measurement of Inflation," DNB Staff Reports (discontinued) 62, Netherlands Central Bank. [Downloadable!]
    Other versions:
  3. Campbell, John Y, 1993. "Intertemporal Asset Pricing without Consumption Data," American Economic Review, American Economic Association, vol. 83(3), pages 487-512, June. [Downloadable!] (restricted)
    Other versions:
  4. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December. [Downloadable!] (restricted)
  5. Jorgenson, Dale W & Slesnick, Daniel T, 1999. "Indexing Government Programs for Changes in the Cost of Living," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(2), pages 170-81, April.
  6. Case, Karl E & Shiller, Robert J, 1989. "The Efficiency of the Market for Single-Family Homes," American Economic Review, American Economic Association, vol. 79(1), pages 125-37, March. [Downloadable!] (restricted)
    Other versions:
  7. Alchian, Armen A & Klein, Benjamin, 1973. "On a Correct Measure of Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 5(1), pages 173-91, Part I Fe. [Downloadable!] (restricted)
  8. Patrick Bajari & C. Lanier Benkard & John Krainer, 2003. "House Prices and Consumer Welfare," NBER Working Papers 9783, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. Matthew D. Shapiro & David W. Wilcox, 1997. "Mismeasurement in the Consumer Price Index: An Evaluation," NBER Working Papers 5590, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  10. Todd E. Clark, 1999. "A comparison of the CPI and the PCE price index," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 15-29. [Downloadable!]
  11. N. Gregory Mankiw & Ricardo Reis, 2003. "What Measure of Inflation Should a Central Bank Target?," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1058-1086, 09. [Downloadable!] (restricted)
    Other versions:
  12. Epstein, Larry G & Zin, Stanley E, 1991. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: An Empirical Analysis," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 263-86, April. [Downloadable!] (restricted)
  13. Bound, John & Burkhauser, Richard V., 1999. "Economic analysis of transfer programs targeted on people with disabilities," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 51, pages 3417-3528 Elsevier. [Downloadable!] (restricted)
  14. C. Goodhart, 2001. "What Weight Should be Given to Asset Prices in the Measurementof Inflation?," DNB Staff Reports (discontinued) 65, Netherlands Central Bank. [Downloadable!]
  15. James H. Stock & Mark W. Watson, 2003. "Forecasting Output and Inflation: The Role of Asset Prices," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 788-829, September.
    Other versions:
  16. Deaton, A. & Grosh, M., 1998. "Consumption," Papers 191, Princeton, Woodrow Wilson School - Development Studies.
  17. Merton, Robert C., 1971. "Optimum consumption and portfolio rules in a continuous-time model," Journal of Economic Theory, Elsevier, vol. 3(4), pages 373-413, December. [Downloadable!] (restricted)
    Other versions:
  18. Gillingham, Robert, 1983. "Measuring the Cost of Shelter for Homeowners: Theoretical and Empirical Considerations," The Review of Economics and Statistics, MIT Press, vol. 65(2), pages 254-65, May. [Downloadable!] (restricted)
  19. Boskin, Michael J & Jorgenson, Dale W, 1997. "Implications of Overstating Inflation for Indexing Government Programs and Understanding Economic Progress," American Economic Review, American Economic Association, vol. 87(2), pages 89-93, May. [Downloadable!] (restricted)
  20. Goodhart, Charles & Hofmann, Boris, 2000. "Do Asset Prices Help to Predict Consumer Price Inflation?," Manchester School, University of Manchester, vol. 68(0), pages 122-40, Supplemen. [Downloadable!] (restricted)
  21. Boskin, Michael J, et al, 1997. "The CPI Commission: Findings and Recommendations," American Economic Review, American Economic Association, vol. 87(2), pages 78-83, May. [Downloadable!] (restricted)
  22. Goodhart, Charles, 2001. "What Weight Should Be Given to Asset Prices in the Measurement of Inflation?," Economic Journal, Royal Economic Society, vol. 111(472), pages F335-56, June. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Michael Parkin, 2009. "What is the Ideal Monetary Policy Regime? Improving the Bank of Canada's Inflation-targeting Program," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 279, January. [Downloadable!]
Statistics
Access and download statistics

Did you know? You can include your works in the database easily by uploading them on the Munich Personal RePEc Archive (MPRA) if you do not have access to an institutional RePEc archive.

This page was last updated on 2009-11-25.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.