The Effects of New Goods and Substitution on the Korean CPI as a Measure of Cost of Living

Daehoon Nahm

International Economic Journal, 2015, vol. 29, issue 1, 57-72

Abstract: This paper estimates upper-level substitution and new-goods bias in the Korean Consumer Price Index (CPI) from the early 1990s to the mid 2000s. It has been estimated that the upper-level substitution bias in the CPI alone increased the inflation rate by 0.51 percentage points per year over the 13-year period between 1990 and 2002. The new-goods bias further increased the inflation rate by 0.17 and 0.13 percentage points per year between 1990-1995 and 1995-2000 respectively. The Chained Laspeyres index series that is based on annually-updated weights has been found to correct less than half of the upper-level substitution bias.

Date: 2015
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DOI: 10.1080/10168737.2014.928894

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