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Measurement Errors in the Japanese Consumer Price Index

Author

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  • Shiratsuka, Shigenori

    (Institute for Monetary & Econ Studies, Bank of Japan)

Abstract

In Japan, the consumer price index (CPI) is widely used as a measure of inflation or the cost of living. The CPI is constructed by using a fixed-weight Laspeyres formula. This formula is used mainly because of its ease of calculation and comprehension, thus limiting the total cost of constructing the statistics. However, such simplicity makes it difficult for the CPI to reflect dynamic changes in economic activity such as changes in consumers' behavior between goods in response to relative price fluctuation, the introduction of new goods, and the disappearance of old goods. As a result, measurement errors are introduced into the CPI. In this paper, I summarize the problems pertaining to measurement errors inherent in the Japanese CPI, and provide some quantitative assessment. Based on currently available information, I place the point estimate for overall bias in the CPI at about 0.90 percentage point per year. Although this is the best estimate taking into account all information currently available, it is true that the estimate was based on various, rather bold assumptions. In addition, it should be noted that accuracy of the estimate is not necessarily high due to the lack of existing studies in this field in Japan.

Suggested Citation

  • Shiratsuka, Shigenori, 1999. "Measurement Errors in the Japanese Consumer Price Index," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 17(3), pages 69-102, December.
  • Handle: RePEc:ime:imemes:v:17:y:1999:i:3:p:69-102
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Maki, Atsushi, 2005. "The statistical price index as an approximation of the constant-utility price index: an empirical analysis using Japanese data sets," Journal of the Japanese and International Economies, Elsevier, vol. 19(1), pages 37-50, March.
    2. Kenn Ariga & Kenji Matsui, 2003. "Mismeasurement of the CPI," NBER Working Papers 9436, National Bureau of Economic Research, Inc.
    3. Etsuro Shioji & Taisuke Uchino, 2011. "Pass-Through of Oil Prices to Japanese Domestic Prices," NBER Chapters,in: Commodity Prices and Markets, East Asia Seminar on Economics, Volume 20, pages 155-189 National Bureau of Economic Research, Inc.
    4. HIGA, Kazuhito, 2014. "Estimating Upward Bias of Japanese Consumer Price Index Using Engel's Law," Discussion Papers 2014-21, Graduate School of Economics, Hitotsubashi University.
    5. Christian Broda & David E. Weinstein, 2007. "Defining Price Stability in Japan: A View from America," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 25(S1), pages 169-206, December.
    6. Abe, Naohito & Moriguchi, Chiaki & Inakura, Noriko, 2014. "The Impact of the Great East Japan Earthquake on Commodity Prices: New Evidence from High-Frequency Scanner Data," Research Center for Price Dynamics Working Paper Series 12, Research Center for Price Dynamics, Institute of Economic Research, Hitotsubashi University.
    7. Wynne, Mark A., 2008. "How should central banks define price stability?," Globalization and Monetary Policy Institute Working Paper 08, Federal Reserve Bank of Dallas.
    8. Kazuhito Higa, 2013. "Estimating Upward Bias in the Japanese CPI Using Engel's Law," Global COE Hi-Stat Discussion Paper Series gd12-295, Institute of Economic Research, Hitotsubashi University.
    9. Shimasawa, Manabu & Sadahiro, Akira, 2009. "Policy reform and optimal inflation rate for Japan in computable OLG economy," Economic Modelling, Elsevier, vol. 26(2), pages 379-384, March.

    More about this item

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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