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High Inflation, Seasonal Commodities, And Annual Index Numbers

  • Diewert, W. Erwin

This paper studies the problems of measuring economic growth under conditions of high inflation. Traditional bilateral index number theory implicitly assumes that variations in the price of acommodity within a period can be ignored. To justify this assumption under conditions ofhigh inflation, the accounting period must be shortened to a quarter, a month, or possibly a week. However, once the accounting period is less than a year, the problem of seasonal commodities isencountered; i.e., in some subannual periods, many seasonal commodities will be unavailable and hence the usual bilateral index number theory cannot be applied. The paper systematicallyreviews the problems of index number construction when there are seasonal commodities and highinflation. Various index number formulas are justified from the viewpoint of the economic approach to index number theory by making separability assumptions on consumers intertemporal preferences. Wefind that accurate economic measurement under conditions of high inflation is very complex.

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Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 2 (1998)
Issue (Month): 04 (December)
Pages: 456-471

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Handle: RePEc:cup:macdyn:v:2:y:1998:i:04:p:456-471_00
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