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The Size of the Substitution Bias of Inflation Measurement in Relation to the Level of Innovativeness of The European Union’s Economies

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  • Roszko-Wójtowicz Elżbieta

    (Univeristy of Lodz, Lodz, Poland)

  • Białek Jacek

    (Univeristy of Lodz, Lodz, Poland)

Abstract

The consumer price index (CPI) is acommon measure of inflation. Similarly to the harmonised index of consumer prices (HICP), it is determined using the Laspeyres index, thus data on the consumption of the basket of goods do not have to be current. The Laspeyres index, using weights only from the base period, may not reflect changes in consumer preferences that occurred in the studied year. This is the reason for the formation of the so-called substitution bias in the measurement of inflation. The aim of the article is to assess the impact of the level of innovativeness of a given country’s economy on the occurrence of the substitution effect. The empirical part of the article is based on basic innovation indices, i.e. the SII, IOI, and GII. The assessment of the relationship between the level of innovativeness and the scale of the substitution effect was carried out based on the methods of multidimensional statistical analysis (including cluster analysis, the PROFIT method).

Suggested Citation

  • Roszko-Wójtowicz Elżbieta & Białek Jacek, 2018. "The Size of the Substitution Bias of Inflation Measurement in Relation to the Level of Innovativeness of The European Union’s Economies," Econometrics. Advances in Applied Data Analysis, Sciendo, vol. 22(4), pages 79-97, December.
    • Handle: RePEc:vrs:eaiada:v:22:y:2018:i:4:p:79-97:n:5
    DOI: 10.15611/eada.2018.4.05
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    References listed on IDEAS

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    More about this item

    Keywords

    inflation measurement; substitution bias; innovativeness; innovation indices; cluster analysis; PROFIT method;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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