A Framework for the Simultaneous Measurement of Spatial Variation and Temporal Movement in Prices in a Heterogeneous Country: The Dynamic Household Regional Product Dummy Model

28 Pages Posted: 24 Sep 2018

See all articles by Manisha Chakrabarty

Manisha Chakrabarty

Indian Institute of Management Calcutta

Amita Majumder

Indian Statistical Institute, Kolkata

Ranjan Ray

Monash University - Department of Economics

Date Written: September 2018

Abstract

This paper contributes to the growing literature on spatial prices in large heterogeneous countries. While the literatures on spatial variation and temporal movement in prices have grown in parallel, this study marks a departure by providing a unified treatment and proposing a comprehensive framework that allows both approaches. The proposed model is based on twin extensions of the household version of the “country product dummy model” by allowing for a dynamic stochastic specification and interdependence of spatial prices of geographically adjacent regions. Tests of temporal stability and regional independence of the estimated spatial prices are proposed and applied in this paper. The paper shows that the introduction of an autoregressive error process of order one, AR(1), improves the efficiency of the estimates of parameters, urban‐rural and temporal price indices under certain conditions. The Indian application points to a rich potential for using the proposed framework in cross country comparisons such as the International Comparison Program (ICP) exercises.

Keywords: cpd model, dynamic specification, regional interdependence, spatial price indices, time invariance

JEL Classification: C23, E31, O53

Suggested Citation

Chakrabarty, Manisha and Majumder, Amita and Ray, Ranjan, A Framework for the Simultaneous Measurement of Spatial Variation and Temporal Movement in Prices in a Heterogeneous Country: The Dynamic Household Regional Product Dummy Model (September 2018). Review of Income and Wealth, Vol. 64, Issue 3, pp. 703-730, 2018. Available at SSRN: https://ssrn.com/abstract=3254456 or http://dx.doi.org/10.1111/roiw.12266

Manisha Chakrabarty (Contact Author)

Indian Institute of Management Calcutta ( email )

Joka
D.H Road
Kolkata, West Bengal 700104
India

Amita Majumder

Indian Statistical Institute, Kolkata ( email )

203 B. T. Road
Kolkata, 700 035
India
+91--33-25752610 (Phone)

HOME PAGE: http://www.isical.ac.in/~eru/amita.html

Ranjan Ray

Monash University - Department of Economics ( email )

Wellington Road
Clayton, Victoria 3
Australia

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