QUANTITY AND PRICE INDEXES FOR CONSTRUCTION

Construction has traditionally constituted one of the problem areas in the preparation of industry price and quantity statistm with in the system of national accounts of most countries. The difficulty stems from what is considered to be the unique character of construction projects. This has unnecessarily impeded the calculation of output price indexes and has resulted in the use of various input-based prices as proxies for output prices. One of the objectives of the development of the system of construction price statistics described in this paper is to permit deflation of the outputs of construction industries in order to produce industry output data in constant prices in a manner consistent with measures for the rest of the economy. This is a more promising approach to improving constant price industry and expenditure measures within the SNA framework than attempting such improvements through the collection of a vast array of quantity data. Construction industries sell specified configurations of materials-in-place which are, to borrow the jargon of other fields, sub-assemblies of some total system. As in other areas of industrial pricing, some of these products are simple and some are complex. Trade contractors sell these sub-assemblies or commodities mainly to an owner-builder or to a general contractor who, in turn, resells the trade contractors’ commodities along with whatever sub-assemblies the general contractor has produced. These sub-assemblies, when combined with, for example, the relevant outputs (or sub-assemblies) of manufacturers, the design services of service industries and the purchasers’ own contributions, yield the wide variety of plant and structures which constitute the various classes of gross fixed capital formation, which are not typically solely the outputs of the construction industries. The resulting contractors’ selling price indexes will provide deflators for the whole range of outputs of the various construction industries. These will become part of the system of industry selling price indexes from which relevant indexes for the various goods and services can be selected and combined with appropriate weights to yield arrays of deflators for the highly complex capital expenditures of business, institutions and government. Ultimately this integrated system of construction industry statistics will permit the preparation of gross output and value added measures, in both current and constant prices, to be calculated for the construction industries as an integral part of the Canadian System of National Accounts, as well as provide a key element for improving the deflation of fixed capital formation.     

PRICES AND PRICE ANALYSIS IN THE FRAMEWORK OF THE NATIONAL ACCOUNTS

The paper discusses the role of prices in the framework of the new System of National Accounts (SNA) in terms of three major uses: (1) deflation, (2) price indicators, and (3) price analysis. Following a brief review of the price and quantity measures required by the new SNA with its emphasis on deflation of commodity flows and input-output accounts, in addition to the more conventional deflation of final demand categories, the paper discusses some of the conceptual, methodological and data problems involved in implementing the various uses of prices in the new SNA. Implementing the use of prices as deflators depends, in part, on the concept of output selected (national versus domestic; gross versus net), and which of six concepts of valuation, ranging from purchasers'value to true factor cost, is used. Some of the difficulties in deflating nonmarket flows (e.g., interplant transfers) and industry value added, based on the double deflation method, are discussed. In concept price deflators, which have shifting weights, cannot be used as price indicators, which should have fixed weights. In practice, this is often disregarded and the deflators are used as price indicators. The paper support the SNA recommendation for the development of price indexes with fixed weights to be used as price indicators, in addition to the implicit price deflators. Research in the United States indicates that differences in weights can result in different price measures for various subperiods, components of demand and sector output. Periodic revisions in weights to provide more current fixed weights for price and quantity indexes in each subperiod may minimize the problem but it introduces a new problem—lack of comparability with the constant price tables in the SNA which have fixed weights for the entire period. The new SNA provides a comprehensive and integrated framework for price analysis including the analysis of the structure of aggregate price changes, the industrial origin of final demand prices, and the impact of price change in one sector of the economy on the rest of the economy. Some major gaps which need to be overcome in order to implement the use of the new SNA for price analysis include the development of industry capital stock estimates, separate estimates of proprietors’income, reconciliation of value added and distribution share estimates, and the development of a wide variety of information to supplement the conventional input-output tables in the SNA. Implementing the various objectives of price measures within the framework of the accounts will require a number of improvements in existing price measures and expanding the scope of coverage. “List” prices should be superseded by “transactions” prices and better techniques and data need to be developed to provide for quality adjustment of prices. Coverage will need to be expanded to include services, freight rates, trade margins, government expenditures, and also fill in gaps for many manufactured products. Finally, where possible, use of unit values as price indexes or deflators, e.g., imports and exports, should be replaced by direct price measures.     

RAMSEY TAXES MEET PRICE RIGIDITY

‘Ramsey taxes’ are commodity taxes that minimize deadweight loss. Evidence has shown dramatic differences in the extent of price rigidity across goods: while the prices of some goods change frequently, the prices of other goods seldom change. This paper examines Ramsey taxes in the presence of heterogeneous price rigidity. We find that, to minimize deadweight loss, lower (higher) tax rates should be imposed on goods with rigid prices if their relative prices are too high (low) relative to the would‐be situation of no price stickiness. Intuitively, Ramsey taxes remedy the relative price distortion caused by the price rigidity of some goods. We calibrate our model to data from Taiwan and the USA, showing a significant cut in welfare cost if Ramsey rather than uniform taxes are applied.     

基于核心通货膨胀视角的 物价走势判定研究*

核心通货膨胀对于央行准确判定物价走势、更好实现稳定物价目标具有重要意义。本文采用广义动态因子模型与频谱分解技术测度的核心通货膨胀相比于CPI通胀率能更准确反映我国物价变动的周期特征与长期趋势,对于央行更合理地引导社会公众的通胀预期,实现物价稳定与产出稳定的动态平衡具有一定的参考价值。鉴于中国转型时期通胀因素的叠加性与复杂性,本文还提出金融宏观调控应综合考虑包括核心CPI、CPI在内的多种通货膨胀指标,在维持长期物价稳定的同时,兼顾物价的短期波动。     

Impact of asset price fluctuation on China’s monetary policy: An empirical analysis based on quarterly data, 1994–2006

The strenuous fluctuation in global asset price in recent years has had a profound impact on the economic and social development of every country. An empirical analysis indicates that asset prices (the stock price index and real estate prices) are important endogenous variables affecting the interest rate reaction function of central bank monetary policy. With expected inflation as a given, each one percentage point rise in output gap will cause a 0.79 percentage point reduction in interest rates by the central bank and each one percentage point rise in real estate price will result in a 2.2 percentage point rise in interest rates. The stock price index does have an influence on the trends in monetary policy, but it is less salient than the impact of housing prices. We also show that monetary policy that employs asset price as an endogenous variable increases the central bank’s control in seeking to attain its objectives. Therefore we suggest that the central bank should make asset price fluctuation an endogenous variable and incorporate it into its forward-looking interest rate rule, in order to facilitate the healthy development of China’s markets for real estate, stocks and derivatives, energy and bulk commodities and maintain rapid, smooth, sustainable and harmonious economic development.     

THE INTEGRATION OF A SYSTEM OF PRICE AND QUANTITY STATISTICS WITH DATA ON RELATED VARIABLES

This paper has two main points. First, the usefulness of the industry detail called for in the SNA would be increased if it were altered to facilitate the construction of price and quantity aggregates classified by stage-of-process sectors. Second, the price and quantity data so arranged should be augmented by data on behaviorally related variables classified the same way. The feasibility of the stage-of-process approach is demonstrated by a table showing the high degree to which the U.S. input-output table for 1967 can be triangularized. The analytical usefulness of the approach is demonstrated through analysis of changes in prices, output, unfilled orders and finished goods inventories for primary and for finished goods manufacturers.     

LARGE FIRMS AND PRICE CONTROL

With the increase in the rate of inflation in recent years, most economists have probably come to accept the need for price control, even though they might oppose it in more normal circumstances. However the view is still very wide- spread -among economists and probably among politicians and the general public – that for an effective system of price control to exist, it is only necessary to control the prices charged by large firms. It is believed that smaller firms will then follow suit, either because they are forced to by the competition of large firms or for some other reason. Recent experience in the U.K. seems to refute this thesis conclusively. It is in the sectors in which small firms predominate that prices rose most rapidly during the two or three years preceding the imposition of price control; this has continued since price control was imposed in November 1972. No explanation of this is attempted, but it is argued that if price control is to be effective it must be extended to all firms irrespective of size. This would raise administrative problems, but it is suggested that these could be dealt with. The character of inflation, like other aspects of the economic situation, can change rapidly. It is possible that with the introduction of the three-day week in British industry in February 1974 (as a consequence of the miners’strike) and the continued rise in import prices (especially the price of oil) the high profits which characterised the years 1971, 1972 and 1973 in Britain will prove to be temporary. However the basic point remains. During these years, the rise in profits added significantly to the increase in retail prices, and this rise took place not only in sectors where large firms are found but also in sectors characterised by the predominance of small and medium-size firms.     

PRICE DISPERSION,INFLATION, AND WELFARE*

We examine the implications of inflation for both price dispersion and welfare in a monetary search economy. In our economy, if the degree of buyers' incomplete information about prices is fixed, both price dispersion and real prices are increasing in inflation. As the inflation rate approaches the Friedman rule, both price dispersion and welfare losses vanish. If households choose the number of prices to observe, then the optimal inflation rate may exceed the Friedman rule as inflation induces search and, up to a point, raises welfare by eroding market power.     

Inflation dynamics in open economies: Empirical evidence for G7 countries on the role of import prices and the cost channel

The supply side effects of both the nominal interest rate (i.e., the cost channel) and import prices on inflation are very important for the design of monetary policy. However, the empirical identification of the cost channel (traditionally associated with the advance payment of wages) has ignored import prices. We start by deducting a New Keynesian Phillips Curve (NKPC) which shows that ignoring import prices in the estimation of the cost channel may lead to incorrect results. Taking this into account, we study the empirical relevance of the cost channel and import prices using the NKPC for the G7 countries. We test whether the estimation of the cost channel is affected when the price of imported inputs is considered; if it is relevant to extend the cost channel given that imports of final consumption goods are also paid in advance; if imports should be treated as inputs and/or consumption goods, and if there is an immediate or slow exchange rate pass-through. Empirical results indicate that the cost channel is present in imported consumption goods in particular, and import prices play an important role in explaining inflation dynamics.     

THE TREATMENT OF “HOME OWNERSHIP” IN THE CPI*

This paper explores the imputed service price approach to the pricing of the services of consumer-owned-and-used durables in the construction of the consumer price index, using the services of owner-occupied housing as an illustration. A theoretical framework for analyzing this question is first developed. Certain practical problems are then discussed. The conceptual difficulty of constructing an appropriate rate of return on the basis of available data on interest rates and house prices, in the context of inflation, is explored. Two arguments are advanced that statistical agencies ought not to follow the imputed service price approach in pricing the services of owner-occupied dwellings and other consumer durables. On the one hand, nominal interest rates will, in any short period, reflect monetary policy and not any change in the money “rental” of owner-occupied houses. Second, movements in nominal interest rates will also reflect changes in the money price of pure consumption goods, as well as changes in the money price of houses. The argument is extended to other consumer durables and, in the limiting case, to monetary balances, and it is concluded that in all but trivial cases the application of the service price approach leads to price movements of little or no meaning.     

OPTIMAL MONETARY POLICY AND ASSET PRICE MISALIGNMENTS

This paper analyses the relationship between monetary policy and asset prices in the context of optimal policy rules. The transmission mechanism is represented by a linearized rational expectations model augmented for the effect of asset prices on aggregate demand. Stabilization objectives are represented by a discounted quadratic loss function penalizing inflation and output gap volatility. Asset prices are allowed to deviate from their intrinsic value due to momentum trading. We find that in the presence of wealth effects and inefficient markets, asset price misalignments from their fundamentals should be included in the optimal interest rate reaction function.     

INFLATION ACCOUNTING FOR THE FEDERAL REPUBLIC OF GERMANY RESULTS USING DIFFERENT DEFLATOR PRICE INDICES

The purpose of inflation accounting as proposed by Jack Hibbert¹ is to show the changes in purchasing power of the assets and liabilities by sectors resulting from general price movements. This paper shows the results of inflation accounting for the Federal Republic of Germany on the basis of complete balance sheets for the sectors "Private households,""Enterprises,""General government" and "Rest of the world" in 1980. It is evident that the results of inflation accounting depend to a high degree on the kind of price index which is used as an indicator of the changes in the purchasing power of money in general. The price index for inflation accounting should in general be selected according to the aim of the analysis. On the other hand, however, the validity of the results of inflation accounting depends on and is limited by the price index chosen for that purpose. The figures presented also show that the results of inflation accounting depend to a high degree on whether estimates of the value of tangible assets are included or not. This holds for reproducible tangible assets as well as for land.     

Monetary Policy with Sectoral Trade‐Offs

We formulate a two‐sector New Keynesian economy featuring sectoral heterogeneity along three dimensions: price stickiness, consumption goods durability, and the usage of input materials in production. These factors affect both inter‐sectoral and intra‐sectoral stabilization. We examine the welfare properties of simple rules that react to alternative measures of final goods price inflation. Due to factor demand linkages, the cost of production in one sector is influenced by price‐setting in the other sector. Therefore, measures of aggregate inflation weighting sectoral prices based on their relative stickiness do not allow one to keep track of the effective speeds of sectoral price adjustment.     

Is there a quality bias in the Canadian CPI? Evidence from microdata

Rising consumer prices may reflect shifts by consumers to new higher‐priced products, mostly for durable and semi‐durable goods. I apply Bils’ (2009) methodology to newly available Canadian consumer price data for non‐shelter goods and services to estimate how price increases can be divided between quality growth and price inflation. I find that less than one third of observed price increases during model changeovers should be attributed to quality growth. This implies overall price inflation close to inflation measured by the official index. I conclude that, according to Bils’ methodology, the quality bias is not an important source of potential mismeasurement of CPI inflation in Canada.     

OIL PRICE VOLATILITY AND U.S. MACROECONOMIC PERFORMANCE

This study uses a model with explicit energy sector linkages to estimate the macroeconomic impacts of the 1986 collapse in energy prices. The model combines features of neoclassical macroeconomics to estimate final demand spending and of general equilibrium analysis to estimate substitution possibilities. The model allows price and wage rigidities yet permits interfuel and input substitutions. The simulation results suggest three conclusions. First, the most significant macroeconomic impact of the 1986 oil price reduction is the sharp drop in inflation. Second, output and employment gains are relatively small due to the sharp drop in energy sector output. Finally, the estimated gain in real output due to lower energy prices is close to the output loss resulting from the trade deficit increase during 1986. This may be one reason why no substantial increase in economic growth occurred following the 1986 collapse in energy prices.     

国际储备积累、实物与资产价格通胀及货币政策独立性

本文理论模型显示,国际储备积累引起的货币增发会导致实物和资产价格上涨,降低货币政策独立性。首先,尽管货币政策工具短期内可以通过冲销和抑制信贷等方法控制通胀,但只要顺差积累足够大,长期无法阻止通胀。其次,如果人们预期央行未来会让物价上升,即使物价当前仍被较好地控制,资产价格也可能出现大幅上涨。最后,在"不可能三角"中,即使放弃资本自由流动,也并不意味着就能同时拥有汇率稳定和独立货币政策。     

PRICE HETEROGENEITY AND "REAL" INEQUALITY: A CASE STUDY OF PRICES AND POVERTY IN RURAL SOUTH INDIA

This paper, based upon a case-study of three Indian villages, studies whether households within the same market pay different prices for identical goods. It is found that not only are unit prices for food heterogeneous, but that the poor pay more for the same goods than the rich. This is because liquidity constraints force poorer households to purchase goods in small quantities and consequently subject them to quantity premiums. Household specific index numbers are used to adjust nominal incomes to real values and it is found that Gini coefficients of real incomes are between 12 percent to 23 percent greater than the Gim for nominal incomes. An econometric analysis of the determinants of prices shows that incomes are negatively correlated with prices, as is family size, but that the amount of land owned shows a positive relationship.     

THE MORPHOLOGY OF PRICE DISPERSION

This article is a study of the shape and structure of the distribution of prices at which an identical good is sold in a given market and time period. We find that the typical price distribution is symmetric and leptokurtic, with a standard deviation between 19% and 36%. Only 10% of the variance of prices is due to variation in the expensiveness of the stores at which a good is sold, whereas the remaining 90% is due, in approximately equal parts, to differences in the average price of a good across equally expensive stores and to differences in the price of a good across transactions at the same store. We show that the distribution of prices that households pay for the same bundle of goods is approximately Normal, with a standard deviation between 9% and 14%. Half of this dispersion is due to differences in the expensiveness of the stores where households shop, whereas the other half is mostly due to differences in households' choices of which goods to purchase at which stores. We find that households with fewer employed members pay lower prices and do so by visiting a larger number of stores instead of by shopping more frequently.     

PRIM I: A MODEL OF THE PRICE AND INCOME DISTRIBUTION MECHANISM OF AN OPEN ECONOMY

PRIM I is a numerical model which has been extensively used as a basis for an income policy in Norway in recent years. It is a static, cost-push, input-output model. Wage rates, agricultural prices, productivities and world market prices are treated as exogenous variables, and the model derives short-term changes in income shares and in the national price level from changes in these exogenous variables. A key feature of the model is a distinction between "exposed industries" which are subject to strong foreign price competition, and "sheltered industries" which are relatively free of such competition. These two groups of industries are found to react with very different pricing policies in response to increases in costs; furthermore, possibly for technological reasons, the export industries have greater scope than the majority of the sheltered industries for compensating cost increases through productivity gains. These two facts are shown to have important implications for a price and income policy. It is demonstrated, i.a. that the goal of a stable national price level is, in general, inconsistent with the maintenance of stable income shares when exchange rates are kept constant.