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Consumers' Opinion of Inflation Bias Due to Quality Improvements in Transition in the Czech Republic

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  • Jan Hanousek
  • Randall K. Filer

Abstract

Substantial understatement of the degree of quality improvement during transition, and, therefore, a substantial overstatement of inflation rates has resulted in a serious downward bias in estimates of the rate of growth of post-communist economies. The move to free markets has apparently improved consumers’ welfare more by improving what they can purchase than by increasing how much they can purchase. Examining 63 products, focus group respondents in the Czech Republic reported that if they were to purchase the 1990 quality product today they would only be willing to do so at a average of 54 per cent of the current price for the current quality product. This implies that the actual increase in prices for the decade for these products 66 per cent instead of the official 139 per cent. Overall, mismeasurement of quality changes may have understated Czech growth rates during the first decade after communism by as much as 5 percentage point per year.

Suggested Citation

  • Jan Hanousek & Randall K. Filer, 2001. "Consumers' Opinion of Inflation Bias Due to Quality Improvements in Transition in the Czech Republic," CERGE-EI Working Papers wp184, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    • Handle: RePEc:cer:papers:wp184
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    3. Égert, Balázs, 2004. "Assessing equilibrium exchange rates in CEE acceding countries: can we have DEER with BEER without FEER? A critical survey of the literature," BOFIT Discussion Papers 1/2004, Bank of Finland Institute for Emerging Economies (BOFIT).
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    5. Esmaeel Ezat, 2008. "The Impact Of Foreign Direct Investment (Fdi) On Domestic Firm'S Product And Service Quality In Czech Republic," JOURNAL STUDIA UNIVERSITATIS BABES-BOLYAI NEGOTIA, Babes-Bolyai University, Faculty of Business.
    6. Kovács, Ilona, 2003. "A fogyasztói árindex torzító tényezői [Distorting factors in the consumer price index]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 702-719.
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    10. Martin Cincibuch & Jiri Podpiera, 2004. "Beyond Balassa - Samuelson: Real Appreciation in Tradables in Transition Countries," Working Papers 2004/09, Czech National Bank.
    11. Balázs Égert & László Halpern & Ronald MacDonald, 2006. "Equilibrium Exchange Rates in Transition Economies: Taking Stock of the Issues," Journal of Economic Surveys, Wiley Blackwell, vol. 20(2), pages 257-324, April.
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    More about this item

    Keywords

    Inflation Bias; Quality Change; Transition Economies;
    All these keywords.

    JEL classification:

    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • P24 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - National Income, Product, and Expenditure; Money; Inflation

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