A Method of Calculating Regional Consumer Price Differentials with Illustrative Evidence from India

In this paper we propose a method of estimating multilateral regional price index numbers from a given household level data set on item-wise unit values/prices. The method is closely related to the Country-Product Dummy variable model of Summers (1973). This method is likely to be particularly useful in studies of regional comparisons of poverty and inequality, optimal commodity taxes and tax reforms. To illustrate the method, we use it to calculate the regional consumer price index numbers for Eastern, Western and Southern India (taking Northern India as the reference region) separately for three categories of rural and urban households, viz., all households and those below and above the poverty line, using household level unit records of the NSS 50th round (1993–94) Consumer Expenditure Survey.     

Estimating Purchasing Power Parities from Household Expenditure Data Using Complete Demand Systems with Application to Living Standards Comparison: India and Vietnam

This study departs from the previous literature on purchasing power parity (PPP) by proposing a demand system based methodology for calculating the PPP that takes account of consumer preferences and allows for the substitution effect of price changes. The methodology is used to calculate the PPP between the Indian Rupee and the Vietnamese Dong. The study allows for regional variation in preferences and price changes both inside the country and between countries. It proposes and applies a methodology for constructing prices from unit values after adjusting them for quality and demographic effects. The adjusted unit values are used as prices in the demand estimations, and the demand parameter estimates are used to calculate both spatial prices within each country and the PPP between the two countries within a consistent framework. The study illustrates the usefulness of preference consistent methods to calculate the PPP by applying the PPPs to compare living standards between India and Vietnam. The significance of the results follows from the fact that the levels of living comparisons are quite sensitive to the PPP used in converting the Rupee expenditure into Vietnamese Dong. The present results on food PPPs question the relevance of the PPPs from the ICP project in cross‐country welfare comparisons especially in a period of high food inflation.     

Exogeneity of Money and its Policy Implications for Price Control: Evidence from South Asia

Abstract. We investigate the policy role that could be assigned to money stock in controlling the price level in four South Asian countries, namely, India, Nepal, Pakistan and Sri Lanka. The problem of policy assignment associated with the Granger non‐causality tests is pointed out. Various forms of exogeneity are tested. Money stocks (M₁ and M₂), consumer price index (CPI) and real GDP are cointegrated and causally related but we find overwhelming evidence of endogeneity of money. The endogeneity of money does not support the authorities’ policy stance of controlling price level through the control of money stock.     

Global Distortions to Agricultural Markets: Indicators of Trade and Welfare Impacts, 1960 to 2007

Despite recent reforms, world agricultural markets remain highly distorted by government policies. Traditional indicators of those price distortions such as producer and consumer support estimates (PSEs and CSEs) can be poor guides to the policies' economic effects. Recent theoretical literature provides scalar index numbers of trade‐ and welfare‐reducing effects of price and trade policies which this paper builds on to develop more‐satisfactory indexes that can be generated using no more than the data used to generate PSEs and CSEs. We then exploit a new Agricultural Distortion database to provide time‐series estimates of index numbers for 75 developing and high‐income countries over the past half‐century.     

The effects of oil price shocks on expenditure category CPI

In this study, we apply a two-block structural vector autoregressive (VAR) model proposed by Kilian and Park (2009) in order to investigate the dynamic effects of changes in oil price on the expenditure category consumer price index (CPI) in the United States and Japan. Our results confirm that each expenditure category price index responded very differently to the same structural shock, and that whether changes in oil price function as a positive stimulus or a negative shock for the individual expenditure category prices also depends on the kind of underlying shock that drives the changes in oil price. Finally, our results also reveal that the manner in which changes in oil price affect each expenditure category price differs between the United States and Japan and these detailed-level differences may lead to aggregate-level differences in the price response of both countries to changes in oil price.     

CALCULATING A PRICE INDEX FOR FAMILIES WITH CHILDREN: IMPLICATIONS FOR MEASURING TRENDS IN CHILD POVERTY RATES

This paper investigates the effects of varying consumption patterns for families with and without children on measured trends in child poverty. We first use data from consumer expenditure surveys to calculate price indices by family type. We next examine the effect of using these group-specific price indices on measured trends in child poverty. Although we find that, all else equal, children increase the cost of living, our calculations indicate that on average families with children experienced relatively lower inflation rates than families without children during the 1968 to 1987 period. While this result suggests that estimates of child poverty rates calculated using an average price index may have over-stated secular increases in child poverty, we find that child poverty rates calculated using a price index specific lo families with children are not substantively different from those calculated using an average index for all families.     

The Generalized Unit Value Index Family

This study introduces a group of Generalized Unit Value indices that evaluate price level changes. The approach is to transform the original price and quantity data into numbers that all relate to a common unit which provides the same intrinsic worth to the consumers. When, in the transformed data, an equivalence of worth is present, then even incommensurables can be aggregated by the standard unit value method. The group of Generalized Unit Value indices includes some well‐known (Laspeyres, Paasche, Banerjee), barely known (Lehr, Davies), and previously quite unknown price indices. Using a Generalized Unit Value price index as a deflator yields a particularly appealing and useful quantity index.     

Using food prices and consumption to examine Chinese cost of living

This paper considers two approaches to examining potential bias in China's consumer price index: (i) inferring true changes in cost of living from consumer behaviour; and (ii) creating alternative price indices to compare with official indices. For (i), our semi‐parametric estimates agree with the recent finding of a large understatement in increases to the true cost of living. For (ii), we focus on food prices and explore potential causes of bias. We find some evidence of a new‐good bias. China's large‐scale migration also causes changes in the cost of living that are not reflected in the consumer price index.     

INTER-OCCUPATION DIFFERENCES IN THE PATTERN OF MONETIZED AND NON-MONETIZED CONSUMER EXPENDITURE IN RURAL INDIA*

This study attempts to examine the inter-occupational differences in the patterns of cash and in-kind expenditure in rural India on the basis of a special tabulation of The National Sample Survey (NSS), 18th round (February 1963-January 1964) consumer expenditure data. The occupational groups considered here are (i) cultivators, (ii) agricultural labourers, (iii) other agriculture, and (iv) non-agricultural occupations. The analysis is carried out primarily in terms of curves relating item-specific cash/kind expenditure to total cash/total kind expenditure for fifteen selected item-groups of expenditure. For each item-occupation combination, four two-parameter forms of Engel curve together with the log-log-inverse form are estimated and the comparisons across occupation groups are made separately on the basis of each of the two-parameter curve forms which were found to give the best fit for at least one occupation group as well as the log-log-inverse form, using analysis of covariance technique. The results indicate that so far as the cash components of item expenditures are concerned, the pattern of expenditure is considerably influenced by occupational factors. It is observed that cultivators have a cash expenditure pattern different from those of agrictural labourers and of households with non-agricultural activities. The comparison of the kind expenditure patterns does not, however, reflect any clear picture primarily because in most cases the itemwise kind expenditure functions could not be estimated satisfactorily. This analysis also suggests that the specification of itemwise cash and kind expenditure functions employed here may not be the most satisfactory ones in an economy with a high degree of non-monetization and therefore alternative specifications need be examined.     

INEQUALITY OF OPPORTUNITY IN EARNINGS AND CONSUMPTION EXPENDITURE: THE CASE OF INDIAN MEN

The paper associates inequality of opportunities with outcome differences that can be accounted by predetermined circumstances which lie beyond the control of an individual, such as parental education, parental occupation, caste, religion, and place of birth. The non‐parametric estimates using parental education as a measure of circumstances reveal that the opportunity share of earnings inequality in 2004–05 was 11–19 percent for urban India and 5–8 percent for rural India. The same figures for consumption expenditure inequality are 10–19 percent for urban India and 5–9 percent for rural India. The overall opportunity share estimates (parametric) of earnings inequality due to circumstances, including caste, religion, region, parental education, and parental occupation, vary from 18 to 26 percent for urban India, and from 16 to 21 percent for rural India. The overall opportunity share estimates for consumption expenditure inequality are close to the earnings inequality figures for both urban and rural areas. The analysis further finds evidence that the parental education specific opportunity share of overall earnings (and consumption expenditure) inequality is largest in urban India, but caste and geographical region also play an equally important role when rural India is considered.     

Sensitivity of ‘optimal’ commodity tax rates to alternative demand functional forms: An econometric case study of India

This study investigates, on a nine commodity disaggregation of Indian budget data (NSS, 28th round), the sensitivity of ‘optimal’ commodity tax rates to alternative demand systems. LES and RNLPS. ‘Optimality’ is used here in the very special sense of being conditional on observed expenditure and fixed consumer prices. The alternative sets of tax rates agree at low levels of ‘inequality aversion’ but disagree widely at ‘Rawlsian’ levels. LES is heavily rejected in favour of its one-parameter generalisation, RNLPS. The results suggest that LES price elasticities should not be used in ‘optimal’ tax calculations. The ‘optimal’ tax rates imply only a modest redistribution.     

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.     

Household composition and the measurement of disparity in levels of living

The importance of household composition in the analysis of inequalities in income distribution based on household survey data is illustrated using data for rural Punjab, India, from the 25th round of the National Sample Survey. The study also reveals that distribution of household consumption expenditure, if not adjusted for household size and composition effects, gives biased measures of the extent of true inequality.     

Impact of Socio-Economic factors on Consumption Expenditure through Public Distribution System in rural India

Impact of public distribution system (PDS) on poverty in rural India is established; however, how the households from different socio-economic backgrounds are procuring through PDS, relatively, needs study. With this objective, influence of factors like poverty status, family size, social group, religion, gender and occupation on probability of household incurring consumption expenditure through PDS has been studied by using unit level data of consumer expenditure survey of National Sample Survey Office (NSSO) and multinomial logistic regression technique. The study is restricted to food grains rice and wheat and reveals that probability of consumption, through PDS, of minorities, economically and socially backward classes are higher, in general.

     

Price, unit value, and quality demanded

Given the paucity of quality price data, it is common to rely on “unit value” (average expenditure per unit) as a proxy for price, but this is an imperfect proxy if households respond to price increases by substituting to lower quality goods. This paper draws on survey data that contain both unit value and price to estimate the severity of quality substitution in Indonesia, finding that it is prevalent. The paper next calculates price elasticities that correct for quality substitution, evaluating and ultimately rejecting a commonly used method for calculating price elasticities using only unit value data. Finally, it demonstrates that quality substitution can result in biased price elasticities even when price is perfectly observed.     

The effect on consumption of household size and composition

The paper is about effects of household composition on household demand. Demand functions where prices are multiplied by consumer unit numbers (Barten-functions) are discussed theoretically and empirically. The theoretical part shows how Barten-functions may be derived from a simple model of distribution and decision-making within the household, incorporating the possibility of joint consumption. Regression analysis of two Norwegian surveys of consumer expenditure is used to inaminate the predictive power of Barten-functions. Equivalent adult scales are computed by a method of approximation using the budget percentage of foodstuffs.     

A Stochastic Model with Penalized Coefficients for Spatial Price Comparisons: An Application to Regional Price Indexes in Italy

This paper focuses on a new strand of research that uses stochastic approach for making spatial price comparisons. We propose a novel method to account for the presence of spatial dependencies in consumer prices and consequently in price indexes by imposing penalization conditions on the estimation of traditional CPD models leading to the spatially-penalized country-product-dummy (SP-CPD) model. The paper proposes an appropriate estimation strategy, which enables us to simultaneously estimate all the parameters in the model, including the smoothing parameter of the penalization term instead of determining it externally. In order to estimate spatial price indexes for areas lacking in price data, we suggest applying the kriging methodology to the price indexes obtained from the SP-CPD model. This new approach is applied to official Italian CPI data for constructing regional spatial price indexes for 2014. The results show that price levels are higher in the Northern-Central regions than in the South.     

Border tax adjustments and tariff‐tax reforms with consumption pollution

We develop a model of a small open economy, where pollution per unit of consumption between domestically produced and imported quantities of the same good differs. We show that the first‐best policy combination calls for consumption taxes on all polluting goods, and border tax adjustment (BTA) measures, that is, tariffs or import subsidies. We identify conditions under which well‐known tariff‐tax reform policies for developing economies, such as a consumer‐price‐neutral piecemeal reform of trade and a consumption tax, and a consumer‐price‐neutral reform of all trade and consumption taxes improve welfare. We also evaluate whether reforms of trade taxes alone are superior to consumer‐price‐neutral reforms of trade and consumption taxes.     

中国金融危机与农产品价格走势的协整研究

本文基于当前美国金融危机背景,选取了有代表性的我国经济指标,利用2005—2008年的月度数据,运用单位根检验和协整检验,对其与农产品价格进行了协整分析,指出该时期内我国居民消费价格指数和农产品价格指数的时间序列均带有一阶差分,证实了我国经济增长与农业经济增长存在稳定的协整关系。最后,基于实证结果分析了金融危机阶段农业对我国国民经济的影响,为相关职能部门进行决策提供了依据。     

The costs of doing hard time: a penitentiary-based regional price index for Canada, 1883–1923

Abstract.  We construct consumer price indices for Canada, based mainly on the expenditure records of Canada's federal penitentiaries. Regional price variation was much greater in Canada in the late nineteenth century than in the northern U.S. The new data suggest substantial price decline to 1900. Regional price variation in Canada decreased gradually to 1914, and quickly during the First World War. For 1900–14 and 1922–3, new data are largely consistent with consumer price data compiled by the Labour Gazette . The new data suggest more inflation during the First World War.