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Measurement errors in Japanese Consumer Price Index

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  • Shigenori Shiratsuka

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

  • Shigenori Shiratsuka, 1999. "Measurement errors in Japanese Consumer Price Index," Working Paper Series WP-99-2, Federal Reserve Bank of Chicago.
  • Handle: RePEc:fip:fedhwp:wp-99-2
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    File URL: http://www.chicagofed.org/digital_assets/publications/working_papers/1999/wp99_02.pdf
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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. Abe, Naohito & Tonogi, Akiyuki, 2010. "Micro and macro price dynamics in daily data," Journal of Monetary Economics, Elsevier, vol. 57(6), pages 716-728, September.
    4. Mahmood Khalid & Zahid Asghar, 2010. "Working to Improve Price Indices Development in Pakistan," Macroeconomics Working Papers 22831, East Asian Bureau of Economic Research.
    5. Kitov, Ivan & KItov, Oleg, 2013. "Inflation, unemployment, and labor force. Phillips curves and long-term projections for Japan," MPRA Paper 49388, University Library of Munich, Germany.
    6. Parkhomenko, Alexander & Redkina, Anastasia & Maslivets, Olga, 2007. "Estimating hedonic price indexes for personal computers in russia: Case of Yekaterinburg," MPRA Paper 3135, University Library of Munich, Germany.
    7. 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.
    8. 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.
    9. 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.
    10. Wynne, Mark A., 2008. "How should central banks define price stability?," Globalization and Monetary Policy Institute Working Paper 08, Federal Reserve Bank of Dallas.
    11. Daniel Leigh, 2004. "Monetary Policy and the Dangers of Deflation:Lessons from Japan," Economics Working Paper Archive 511, The Johns Hopkins University,Department of Economics.
    12. Naohito Abe & Kyosuke Shiotani, 2014. "Who Faces Higher Prices? An Empirical Analysis Based on Japanese Homescan Data," Asian Economic Policy Review, Japan Center for Economic Research, vol. 9(1), pages 94-115, January.
    13. 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.
    14. Shigenori Shiratsuka, 2014. "Comment on “Product Downsizing and Hidden Price Increases: Evidence from Japan's Deflationary Period”," Asian Economic Policy Review, Japan Center for Economic Research, vol. 9(1), pages 90-91, January.
    15. 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.

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    Keywords

    Consumer price indexes ; Japan;

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