Biases in Cross-Space Comparisons Through Cross-Time Price Indexes: The Case of Russia
Institute of Economics and Industrial Engineering, Siberian Branch of the Russian Academy of Sciences; Department of Economics, Novosibirsk State University
August 18, 2006
BOFIT Discussion Paper No. 9/2006
Lacking data on price levels across locations (countries, national regions, etc.) for cross-space 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 CPI-proxied 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.
Number of Pages in PDF File: 53
Keywords: consumer price index, spatial price index, real income, nonhomothetic preferences, Russia, Russian regions
JEL Classification: C43, E31, P22, R19working papers series
Date posted: July 24, 2007
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