Consumers' Opinion of Inflation Bias Due to Quality Improvements
AbstractMeasurement 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 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. Overall, mismeasurement of quality changes may have understated Czech growth rates during the first decade after communism by as much as 5 percentage points per year.
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Bibliographic InfoPaper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 2004-681.
Length: 30 pages
Date of creation: 01 May 2004
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Inflation Bias; Quality Change; Transition Economies; Czech Republic;
Other versions of this item:
- Hanousek, Jan & Filer, Randall K, 2004. "Consumers' Opinion of Inflation Bias Due to Quality Improvements," Economic Development and Cultural Change, University of Chicago Press, vol. 53(1), pages 235-54, October.
- Jan Hanousek & Randall K. Filer, 2002. "Consumers' Opinion of Inflation Bias Due to Quality Improvements," Hunter College Department of Economics Working Papers 02/8, Hunter College: Department of Economics.
- C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- P24 - Economic Systems - - Socialist Systems and Transition Economies - - - National Income, Product, and Expenditure; Money; Inflation
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