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Substitution Biases in Price Indexes during Transition

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Author Info
Jan Hanousek (CERGE-EI, Prague)
Randall K. Filer (CUNY)

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Abstract

The rapidly changing environment of the transition may create special problems for calculation of index numbers that require a fixed basket of goods and retail outlets. Using referent-level data we find that fixed- weight Laspeyres index on average overstated cost of living increases by approximately 5 per cent a year when compared with a superlative index in the Czech Republic. This difference is smaller than might be expected given the large changes in relative prices that occurred during transition and suggests that consumer substitution impacts may have been largely offset by other factors, especially rising prices combined with increased consumption of some goods as artificial shortages under communism were removed. Indeed, in the period of greatest supply response to price liberalization, the Laspeyres index appears to understate increases in the cost of living.

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Paper provided by EconWPA in its series Development and Comp Systems with number 0306002.

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Length: 22 pages
Date of creation: 16 Jun 2003
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Handle: RePEc:wpa:wuwpdc:0306002

Note: Type of Document - pdf; prepared on IBM PC ; to print on HP/PostScript; pages: 22 ; figures: included
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Related research
Keywords: Inflation Bias; Transition Economies; Output Fall CPI Bias; Formula bias; Price Liberalization; Substitution bias;

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Find related papers by JEL classification:
C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data
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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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. Jan Hanousek & Randall K. Filer, 2000. "Output Changes and Inflationary Bias in Transition," CERGE-EI Working Papers wp167, The Center for Economic Research and Graduate Education - Economic Institute, Prague. [Downloadable!]
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  2. Moulton, Brent R, 1996. "Bias in the Consumer Price Index: What Is the Evidence?," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 159-77, Fall. [Downloadable!] (restricted)
  3. Mark A. Wynne & Fiona D. Sigalla, 1994. "The consumer price index," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q II, pages 1-22. [Downloadable!]
  4. Matthew D. Shapiro & David W. Wilcox, 1997. "Alternative strategies for aggregating prices in the CPI," Review, Federal Reserve Bank of St. Louis, issue May, pages 113-125. [Downloadable!]
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  5. Triplett, Jack E, 2001. "Should the Cost-of-Living Index Provide the Conceptual Framework for a Consumer Price Index?," Economic Journal, Royal Economic Society, vol. 111(472), pages F311-34, June. [Downloadable!] (restricted)
  6. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May. [Downloadable!] (restricted)
  7. Jan Hanousek & Randall K. Filer, 2001. "Survey-based Estimates of Biases in Consumer Price Indices During Transition: Evidence from Romania," CERGE-EI Working Papers wp178, The Center for Economic Research and Graduate Education - Economic Institute, Prague. [Downloadable!]
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  8. Paula De Masi & Vincent Koen, 1997. "Prices in Transition - Ten Stylized Facts," IMF Working Papers 97/158, International Monetary Fund.
  9. Jan Hanousek & Randall K. Filer, 2001. "Consumers' Opinion of Inflation Bias Due to Quality Improvements in Transition in the Czech Republic," Development and Comp Systems 0110009, EconWPA. [Downloadable!]
    Other versions:
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