IDEAS home Printed from https://ideas.repec.org/a/eso/journl/v47y2016i3p327-337.html
   My bibliography  Save this article

Estimating Commodity Substitution Bias in the Irish Inflation Rate Statistics during the Financial Crisis

Author

Listed:
  • Colin Bermingham

    (Formerly of the Central Bank of Ireland, Dublin, Ireland)

  • Dermot Coates

    (Central Bank of Ireland, Dublin, Ireland)

  • Derry O'Brien

    (Formerly of the Central Bank of Ireland, Dublin, Ireland)

Abstract

Measures such as the Consumer Price Index are important economic indicators setting out price changes in the Irish economy over time. Such measures, however, are subject to various types of measurement bias. The latter can include Commodity Substitution Bias whereby the weights assigned to each item in a representative basket of goods and services cease to fully reflect consumer expenditure patterns over time, and particularly during a period of economic upheaval. This, in turn, can lead to the overstatement (or understatement) of inflation. The Central Statistics Office (CSO) now updates the relevant weights every year, thereby reducing the impact of this bias. In this article, we have endeavoured to estimate the size of the bias in the period leading up to the introduction of the new methodology in 2012. The results presented here indicate that the rate of inflation was slightly understated. The degree of this measurement bias was not significantly higher than that identified in other countries in which this phenomenon has been examined, albeit that in the latter countries an upward bias (or overstatement) was found.

Suggested Citation

  • Colin Bermingham & Dermot Coates & Derry O'Brien, 2016. "Estimating Commodity Substitution Bias in the Irish Inflation Rate Statistics during the Financial Crisis," The Economic and Social Review, Economic and Social Studies, vol. 47(3), pages 327-337.
  • Handle: RePEc:eso:journl:v:47:y:2016:i:3:p:327-337
    as

    Download full text from publisher

    File URL: https://www.esr.ie/article/view/603/142
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. James Rossiter, 2005. "Measurement Bias in the Canadian Consumer Price Index," Staff Working Papers 05-39, Bank of Canada.
    2. David E. Lebow & Jeremy B. Rudd, 2003. "Measurement Error in the Consumer Price Index: Where Do We Stand?," Journal of Economic Literature, American Economic Association, vol. 41(1), pages 159-201, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gaddis,Isis, 2016. "Prices for poverty analysis in Africa," Policy Research Working Paper Series 7652, The World Bank.
    2. Jessie Handbury & Tsutomu Watanabe & David E. Weinstein, 2013. "How Much Do Official Price Indexes Tell Us about Inflation?," NBER Working Papers 19504, National Bureau of Economic Research, Inc.
    3. Schmitt-Grohé, Stephanie & Uribe, Martín, 2012. "On quality bias and inflation targets," Journal of Monetary Economics, Elsevier, vol. 59(4), pages 393-400.
    4. Erica L. Groshen & Brian C. Moyer & Ana M. Aizcorbe & Ralph Bradley & David M. Friedman, 2017. "How Government Statistics Adjust for Potential Biases from Quality Change and New Goods in an Age of Digital Technologies: A View from the Trenches," Journal of Economic Perspectives, American Economic Association, vol. 31(2), pages 187-210, Spring.
    5. Oleg KITOV & Ivan KITOV, 2012. "A Win-Win Monetary Policy In Canada," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 6(6(18)/ Su), pages 160-176.
    6. Libor Dusek & Lubomir Lizal (ed.), 2011. "CERGE-EI Tackles Transition," CERGE-EI Books, The Center for Economic Research and Graduate Education - Economics Institute, Prague, edition 1, number b05, May.
    7. Bokor, László, 2007. "Optimality criteria of hybrid inflation-price level targeting," MPRA Paper 10278, University Library of Munich, Germany, revised Jul 2008.
    8. Davis, Morris A. & Martin, Robert F., 2009. "Housing, home production, and the equity- and value-premium puzzles," Journal of Housing Economics, Elsevier, vol. 18(2), pages 81-91, June.
    9. Kevin D. Moore & William Robson & Alexandre Laurin, 2010. "Canada’s Looming Retirement Challenge: Will Future Retirees Be Able to Maintain Their Living Standards upon Retirement?," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 317, December.
    10. Timothy K.M. Beatty & Erling Røed Larsen & Dag Einar Sommervoll, 2005. "Measuring the Price of Housing Consumption for Owners in the CPI," Discussion Papers 427, Statistics Norway, Research Department.
    11. Jan Hanousek & Randall K. Filer, 2002. "Consumers' Opinion of Inflation Bias Due to Quality Improvements," Economics Working Paper Archive at Hunter College 02/8, Hunter College Department of Economics.
    12. Brian Adams & Lara Loewenstein & Hugh Montag & Randal Verbrugge, 2024. "Disentangling Rent Index Differences: Data, Methods, and Scope," American Economic Review: Insights, American Economic Association, vol. 6(2), pages 230-245, June.
    13. Caitlin Blair, 2013. "Constructing a PCE-Weighted Consumer Price Index," NBER Working Papers 19582, National Bureau of Economic Research, Inc.
    14. Borusyak, Kirill & Jaravel, Xavier, 2024. "Are trade wars class wars? The importance of trade-induced horizontal inequality," Journal of International Economics, Elsevier, vol. 150(C).
    15. Angelo Melino, 2011. "Moving Monetary Policy Forward: Why Small Steps - and a Lower Inflation Target - Make Sense for the Bank of Canada," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 319, January.
    16. Filho, Irineu de Carvalho & Chamon, Marcos, 2012. "The myth of post-reform income stagnation: Evidence from Brazil and Mexico," Journal of Development Economics, Elsevier, vol. 97(2), pages 368-386.
    17. Lieu, Pang-Tien & Liang, Jung-Hui & Chen, Jui-Hui, 2008. "Consumer preferences and cost of living in Taiwan," Journal of Asian Economics, Elsevier, vol. 19(3), pages 224-235, June.
    18. Kirill Borusyak & Xavier Jaravel, 2018. "The Distributional Effects of Trade: Theory and Evidence from the United States," 2018 Meeting Papers 284, Society for Economic Dynamics.
    19. Christian Broda & Ephraim Leibtag & David E. Weinstein, 2009. "The Role of Prices in Measuring the Poor's Living Standards," Journal of Economic Perspectives, American Economic Association, vol. 23(2), pages 77-97, Spring.
    20. Caitlin Blair, 2014. "Constructing a PCE-Weighted Consumer Price Index," NBER Chapters, in: Improving the Measurement of Consumer Expenditures, pages 53-74, National Bureau of Economic Research, Inc.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eso:journl:v:47:y:2016:i:3:p:327-337. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Aedin Doris (email available below). General contact details of provider: https://www.esr.ie .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.