TY - JOUR

T1 - The path-dependence bias in approximating local price levels by CPIs

AU - Gluschenko, Konstantin

PY - 2016

Y1 - 2016

N2 - Lacking data on price levels across locations (countries, national regions, etc.) for crossspace comparisons, researchers resort to local consumer price indexes (CPIs) over time to evaluate these levels. This approach unfortunately fails to specify, even generally, the exactness of such proxies. Worse, the method is silent on whether the results are consistent, at least qualitatively, with those obtained using actual price levels. This paper aims to find an answer empirically, using data across Russian regions. Through comparison of CPIproxied price levels with direct evaluations of regional price levels (i.e. Surinov spatial price indexes and the costs of a purchasing power basket), biases that distort the qualitative pattern of inter-regional differences are identified. Cross-region distributions for real income (calculated with CPI-proxied and directly evaluated price levels) for several points in time are estimated and compared. The CPI-induced biases are found to generally overstate inter-regional disparities.

AB - Lacking data on price levels across locations (countries, national regions, etc.) for crossspace comparisons, researchers resort to local consumer price indexes (CPIs) over time to evaluate these levels. This approach unfortunately fails to specify, even generally, the exactness of such proxies. Worse, the method is silent on whether the results are consistent, at least qualitatively, with those obtained using actual price levels. This paper aims to find an answer empirically, using data across Russian regions. Through comparison of CPIproxied price levels with direct evaluations of regional price levels (i.e. Surinov spatial price indexes and the costs of a purchasing power basket), biases that distort the qualitative pattern of inter-regional differences are identified. Cross-region distributions for real income (calculated with CPI-proxied and directly evaluated price levels) for several points in time are estimated and compared. The CPI-induced biases are found to generally overstate inter-regional disparities.

KW - spatial price index

KW - inflation

KW - Divisia index

KW - nonhomothetic preferences

KW - demand system

UR - https://elibrary.ru/item.asp?id=18829327

M3 - Article

VL - 3

SP - 69

EP - 76

JO - Journal of Economics Library

JF - Journal of Economics Library

SN - 2149-2379

IS - 1

ER -