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On Measuring The True Cost of Living for the Developing Country: Case of Korea

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  • Tong Hun Lee
  • Keun Jon Chung

Abstract

In a rapidly developing country without an adequate mortgage market, it is difficult to impute the cost of owning a home and, as a result, this cost is often omitted from the Consumer Price Index (CPI). To resolve this difficulty, by using an intertemporal consumption allocation model, this paper develops a method for deriving the user cost of owner-occupied housing which is in turn incorporated in the so-called True Cost of Living Index (TCLI). When applied to Korea as an example, the statistical results show substantially higher inflation than previously assumed, indicating the importance of homeownership cost in measuring the standard of living for a developing country. Thus, in both theory and practice, our TCLI based on the Diewert-superlative chain index is superior to the conventional fixed weight CPI, indicating its usefulness not just for Korea but also for other countries [C43, D11, O53]

Suggested Citation

  • Tong Hun Lee & Keun Jon Chung, 1997. "On Measuring The True Cost of Living for the Developing Country: Case of Korea," International Economic Journal, Taylor & Francis Journals, vol. 11(1), pages 1-14.
    • Handle: RePEc:taf:intecj:v:11:y:1997:i:1:p:1-14
    DOI: 10.1080/10168739700000001
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    References listed on IDEAS

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    1. William A. Barnett, 2000. "Economic Monetary Aggregates: An Application of Index Number and Aggregation Theory," Contributions to Economic Analysis, in: The Theory of Monetary Aggregation, pages 11-48, Emerald Group Publishing Limited.
    2. William A. Barnett, 2000. "The User Cost of Money," Contributions to Economic Analysis, in: The Theory of Monetary Aggregation, pages 6-10, Emerald Group Publishing Limited.
    3. Lee, Tong Hun & Han, Sil, 1990. "On measuring the relative size of the unregulated to the regulated money market over time," Journal of Development Economics, Elsevier, vol. 33(1), pages 53-65, July.
    4. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
    5. John Muellbauer, 1975. "Aggregation, Income Distribution and Consumer Demand," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 42(4), pages 525-543.
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