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Consumers' Opinion of Inflation Bias Due to Quality Improvements

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  • Hanousek, Jan
  • Filer, Randall K

Abstract

Measurement 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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  • 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 235-254, October.
    • Handle: RePEc:ucp:ecdecc:y:2004:v:53:i:1:p:235-54
    DOI: 10.1086/423260
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    2. Bruha, Jan & Podpiera, Jirí & Polák, Stanislav, 2010. "The convergence dynamics of a transition economy: The case of the Czech Republic," Economic Modelling, Elsevier, vol. 27(1), pages 116-124, January.
    3. Jan Babecký & Fabrizio Coricelli & Roman Horváth, 2009. "Assessing Inflation Persistence: Micro Evidence on an Inflation Targeting Economy," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 59(2), pages 102-127, June.
    4. Esmaeel Ezat, 2008. "The Impact Of Foreign Direct Investment (Fdi) On Domestic Firm'S Product And Service Quality In Czech Republic," JOURNAL STUDIA UNIVERSITATIS BABES-BOLYAI NEGOTIA, Babes-Bolyai University, Faculty of Business.
    5. Carmen Maria Gut, 2008. "Participation To Professional Training Courses Of The Employees Belonging To Companies From The Romanian Manufacturing Industry," JOURNAL STUDIA UNIVERSITATIS BABES-BOLYAI NEGOTIA, Babes-Bolyai University, Faculty of Business.
    6. Filer, Randall K. & Hanousek, Jan, 2003. "Inflationary bias in middle to late transition Czech Republic," Economic Systems, Elsevier, vol. 27(4), pages 367-376, December.
    7. Randall K. Filer & Jan Hanousek, 2003. "Inflationary Bias in Mid to Late Transition Czech Republic," Development and Comp Systems 0306001, University Library of Munich, Germany.
    8. Jan Bruha & Jiri Podpiera & Stanislav Polak, 2007. "The Convergence of a Transition Economy: The Case of the Czech Republic," Working Papers 2007/3, Czech National Bank.
    9. Ctirad Slavík, 2007. "Reálná konvergence České republiky k Evropské unii v porovnání s ostatními novými členskými zeměmi [Real convergence of the Czech republic to the EU in comparison with the other new member countrie," Politická ekonomie, Prague University of Economics and Business, vol. 2007(1), pages 23-40.
    10. Jos J. Van Der Werf, 2008. "Would-Be Problem Improvers In Action: Tackling Ambiguity In Organizational Issues," JOURNAL STUDIA UNIVERSITATIS BABES-BOLYAI NEGOTIA, Babes-Bolyai University, Faculty of Business.
    11. Mr. Ashoka Mody & Ms. Franziska L Ohnsorge, 2007. "Can Domestic Policies Influence Inflation?," IMF Working Papers 2007/257, International Monetary Fund.
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    13. Brůha, Jan & Podpiera, Jiří, 2007. "Transition economy convergence in a two-country model: implications for monetary integration," Working Paper Series 740, European Central Bank.

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    More about this item

    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 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - National Income, Product, and Expenditure; Money; Inflation

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