The Path-Dependence Bias in Approximating Local Price Levels by CPIs

Konstantin Gluschenko

MPRA Paper from University Library of Munich, Germany

Abstract: Lacking data on price levels across locations, economists are forced to proxy them. One method is to extrapolate the price levels known for locations in some point in time to another point by multiplying the initial price levels by the local CPIs. With the use of simulation experiments, this paper demonstrates that such a method is inadequate, since the path dependence of CPI alone produces considerable biases distorting cross-location comparisons of price levels.

Keywords: spatial price index; inflation; Divisia index; nonhomothetic preferences; demand system (search for similar items in EconPapers)
JEL-codes: C15 C43 E31 R19 (search for similar items in EconPapers)
Date: 2016-01-21
New Economics Papers: this item is included in nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: The Path-Dependence Bias in Approximating Local Price Levels by CPIs (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:68936

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