Substitution Biases in Price Indexes during Transition
AbstractThe 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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Bibliographic InfoPaper provided by EconWPA in its series Development and Comp Systems with number 0306002.
Length: 22 pages
Date of creation: 16 Jun 2003
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Inflation Bias; Transition Economies; Output Fall CPI Bias; Formula bias; Price Liberalization; Substitution bias;
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; 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-06-25 (All new papers)
- NEP-MAC-2003-06-25 (Macroeconomics)
- NEP-TRA-2003-06-25 (Transition Economics)
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