Consumers’ Opinion of Inflation Bias Due to Quality Improvements

Measurement of quality changes has proven to be an especially difficult aspect of calculating unbiased rates of inflation. We propose a new methodology of capturing quality improvements based on consumer focus groups and apply this methodology in an environment where quality changes might be expecte...

Full description

Saved in:
Bibliographic Details
Published in:Economic development and cultural change 2004-10, Vol.53 (1), p.235-254
Main Authors: Hanousek, Jan, Filer, Randall K.
Format: Article
Language:English
Subjects:
Adjustment
Bias
Consumer behavior
Consumer goods
Consumer Price Index
Consumer prices
Consumers
Cultural change
Czech Republic
Economic conditions
Economic development
Estimation bias
European Monetary Union
Focus groups
Inflation
Inflation rates
Market prices
Methods
Opinion
Price changes
Price increases
Price level changes
Product quality
Quality standards
Studies
Transition economies
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Measurement of quality changes has proven to be an especially difficult aspect of calculating unbiased rates of inflation. We propose a new methodology of capturing quality improvements based on consumer focus groups and apply this methodology in an environment where quality changes might be expected to be especially rapid and extensive, a post‐Communist transition economy. We find that the methodology indicates a substantial understatement of quality improvements during transition, and, therefore, a substantial overstatement of inflation, resulting in a serious downward bias in growth rate estimates for post‐Communist economies. The move to free markets has apparently improved consumers' welfare more by improving what they can purchase than by increasing how much they can purchase. Overall, mismeasurement of quality changes may have understated Czech growth rates during the first decade after Communism by as much as 5 percentage points per year.
ISSN:0013-0079
1539-2988
DOI:10.1086/423260