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Price Index Numbers under Large-Scale Demand Shocks–The Japanese Experience of the COVID-19 Pandemic

Author

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  • Abe Naohito

    (The Institute of Economic Research, Hitotsubashi University, Institute of Economic Research 2-1, Naka, Kunitachi, Tokyo, 186-8601, Japan.)

  • Inoue Toshikatsu

    (The Institute of Economic Research, Hitotsubashi University, Institute of Economic Research 2-1, Naka, Kunitachi, Tokyo, 186-8601, Japan.)

  • Sato Hideyasu

    (Department of Food and Nutritional Sciences, Toyo University, 1-1-1 Izumino, Itakura-machi, Ora-gun, Gunma 374-0193, Japan.)

Abstract

We investigate the prices and quantities of face masks when the 2020 COVID-19 pandemic was particularly serious to understand the impact of demand shocks on the cost of living index (COLI). Using a recently developed index number formula that is exact for the constant elasticity of substitution utility function with variable preferences, we quantified the degree of demand shock caused by the pandemic. Our empirical analysis revealed that shifts in preferences during the pandemic were so large that the COLI with variable tastes became very different from the standard superlative indexes. While the prices of face masks decreased in the Fisher index in May 2020 by 0.76% per week, the COLI increased by 1.92% per week.

Suggested Citation

  • Abe Naohito & Inoue Toshikatsu & Sato Hideyasu, 2022. "Price Index Numbers under Large-Scale Demand Shocks–The Japanese Experience of the COVID-19 Pandemic," Journal of Official Statistics, Sciendo, vol. 38(1), pages 301-317, March.
    • Handle: RePEc:vrs:offsta:v:38:y:2022:i:1:p:301-317:n:2
    DOI: 10.2478/jos-2022-0016
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    References listed on IDEAS

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    7. Abe, Naohito & 阿部, 修人 & Rao, D.S.Prasada, 2020. "Generalized Logarithmic Index Numbers with Demand Shocks: Bridging the Gap between Theory and Practice," RCESR Discussion Paper Series DP20-1, Research Center for Economic and Social Risks, Institute of Economic Research, Hitotsubashi University.
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    Cited by:

    1. Higo, Masahiro & Shiratsuka, Shigenori, 2023. "Consumer price measurement under the first wave of the COVID-19 spread in Japan: Scanner data evidence for retailers in Tokyo," Japan and the World Economy, Elsevier, vol. 65(C).
    2. So Kubota, 2021. "The macroeconomics of COVID-19 exit strategy: the case of Japan," The Japanese Economic Review, Springer, vol. 72(4), pages 651-682, October.
    3. Masahiro Higo & Shigenori Shiratsuka, 2022. "Was Inflation Observed under the First Wave of the COVID-19 Spread in Japan? Scanner Data Evidence for Retailers in Tokyo," Keio-IES Discussion Paper Series 2022-013, Institute for Economics Studies, Keio University.

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