Substitution Biases in Price Indexes during Transition

Jan Hanousek and Randall Filer

Development and Comp Systems from University Library of Munich, Germany

Abstract: The rapidly changing environment of the transition may create special problems for calculation of index numbers that require a fixed basket of goods and retail outlets. Using referent-level data we find that fixed- weight Laspeyres index on average overstated cost of living increases by approximately 5 per cent a year when compared with a superlative index in the Czech Republic. This difference is smaller than might be expected given the large changes in relative prices that occurred during transition and suggests that consumer substitution impacts may have been largely offset by other factors, especially rising prices combined with increased consumption of some goods as artificial shortages under communism were removed. Indeed, in the period of greatest supply response to price liberalization, the Laspeyres index appears to understate increases in the cost of living.

Keywords: Inflation Bias; Transition Economies; Output Fall CPI Bias; Formula bias; Price Liberalization; Substitution bias (search for similar items in EconPapers)
JEL-codes: C82 E31 P24 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2003-06-16
New Economics Papers: this item is included in nep-mac and nep-tra
Note: Type of Document - pdf; prepared on IBM PC ; to print on HP/PostScript; pages: 22 ; figures: included
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpdc:0306002

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