Producer Prices versus Consumer Prices in the Measurement of Risk Sharing

Bent Sorensen and Oved Yosha

Applied Economics Quarterly (formerly: Konjunkturpolitik), 2007, vol. 53, issue 1, 3-17

Abstract: In empirical research on the measurement of macroeconomic risk sharing there is no agreement on how Gross Domestic Product (GDP), or the corresponding series for regions, should be deflated. We present a stylized theoretical model that illustrates why the appropriate method for deflating nominal GDP (for the purpose of measuring risk sharing) is with a CPI deflator, not with a GDP deflator. We further explain that CPI deflated GDP (the ``consumption value'' of output) and GDP deflated with a GDP deflator (the volume of output) do represent the same underlying economic series up to measurement error. We illustrate the results estimating the amount of risk shared within subgroups of U.S. states.

Keywords: Inter-regional insurance; U.S.\ states; Consumption smoothing; Volume of output; Price indices (search for similar items in EconPapers)
JEL-codes: C43 F36 (search for similar items in EconPapers)
Date: 2007
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