The Size of the Substitution Bias of Inflation Measurement in Relation to the Level of Innovativeness of The European Union’s Economies

Roszko-Wójtowicz Elżbieta () and Jacek Białek
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Roszko-Wójtowicz Elżbieta: Univeristy of Lodz, Lodz, Poland

Econometrics. Advances in Applied Data Analysis, 2018, vol. 22, issue 4, 79-97

Abstract: The consumer price index (CPI) is acommon measure of inflation. Similarly to the harmonised index of consumer prices (HICP), it is determined using the Laspeyres index, thus data on the consumption of the basket of goods do not have to be current. The Laspeyres index, using weights only from the base period, may not reflect changes in consumer preferences that occurred in the studied year. This is the reason for the formation of the so-called substitution bias in the measurement of inflation. The aim of the article is to assess the impact of the level of innovativeness of a given country’s economy on the occurrence of the substitution effect. The empirical part of the article is based on basic innovation indices, i.e. the SII, IOI, and GII. The assessment of the relationship between the level of innovativeness and the scale of the substitution effect was carried out based on the methods of multidimensional statistical analysis (including cluster analysis, the PROFIT method).

Keywords: inflation measurement; substitution bias; innovativeness; innovation indices; cluster analysis; PROFIT method (search for similar items in EconPapers)
JEL-codes: C38 C43 E31 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:eaiada:v:22:y:2018:i:4:p:79-97:n:5

DOI: 10.15611/eada.2018.4.05

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