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CPI mismeasurements and their impacts on economic management in Korea

Abstract
We estimate the consumer price index (CPI) bias in Korea by employing the approach of Engel's Law as suggested by Hamilton (2001). Using Korean panel data (Korean Labor and Income Panel Study) and following Hamilton's model with a non-linear specification correction, our estimation result shows that the CPI bias over the sample period (2000–05) averaged at least 0.7 percent annually, which implies that about 21 percent of the inflation rate during the sample period can be attributed to the bias. This CPI bias has caused a substantial understatement of the growth in real GDP and contributes to excessive transfers from younger taxpayers to the elderly through indexed pension payments. We discuss the implications of the CPI bias for economic management and policies in Korea.
Type
Journal Article
Type of thesis
Series
Citation
Chung, C. & Gibson, J. (2010). CPI mismeasurements and their impacts on economic management in Korea. Asian Economic Papers, 9(1), 1-15.
Date
2010
Publisher
Mass Inst of Technology Press
Degree
Supervisors
Rights
This article has been published in the journal: Asian Economic Papers. © 2010 The Earth Institute at Columbia University and the Massachusetts Institute of Technology.