Upper-level substitution and new-goods bias in the Korean Consumer Price Index

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Abstract

The present paper estimates upper-level substitution and new-goods bias in the Korean Consumer Price Index (CPI). 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 thirteen-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 new Chained Laspeyres index series that is based on annually-updated weights has been found to correct only less than half of the upperlevel substitution bias.
Original languageEnglish
Pages (from-to)1-32
Number of pages32
JournalMacquarie economics research papers
Volume2006
Issue number2
Publication statusPublished - 2006

Keywords

  • substitution bias
  • new-goods bias
  • Consumer Price Index (CPI)

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