engleski

Statistical Problems Measuring Economic Variables

In this paper we discuss the problems of official statistics in measuring price and volume changes over time in Croatia as a transition country. We review the most recent developments in the area of index numbers. Changes of the national account series, like the GDP or GNI, are the result of price changes and volume changes. The importance of these series is to show how economy is growing or contracting. Economic growth could best be analysed with constant price series adjusted for price effects. The problems arise when we put into a question the quality of index numbers, particularly price indices. When discussing the quality of index numbers the main concern is quality treatment, outlet substitution, treatment of seasonal goods and the question if the list of items whose prices are to be measured is representative. If not properly calculated, the price indices could be biased with the great impact on GDP and other series expressed in fixed prices. In most cases an accurate estimation of bias is very difficult. Statistical offices in transition countries are often poorely funded to grasp with the problem of quality change, i.e. employing hedonic indices. Also, in transition countries the change of the structure in consumption is much faster then in developed countries, so Laspeyres index, which is widely used, could be biased. The share of "grey" economy and black market is higher than in developed coutries, so official statistics could not cover all changes. 2. Construction of index numbers Official statistics in most countries use mainly two types of index numbers: Laspeyres and Paasche indices. Consumer price indices are calculated for different groups of households with similar expenditure patterns. Each of these categories of households will consume different amounts or types of goods and services, so the weight of categories of expenditures like food or clothing will be different for the different households. In periods of hyperinflation it should be necessary to compile the CPI weekly. Some countries change the base period annually while others change the base period every five years, some after more than five years Laspeyres index measures the change in cost of purchasing the same basket of goods and services in the current period as we purchased in a specified base period. Paache index could be obtained in two alternative ways, either as the ratio of two value aggregates or as a weighted average of the price relatives, the average beeing a harmonic average that uses revenue shares of the latter period t as weights. Most statistical agencies prefer Laspeyres index. A time series of monthly Laspeyres CPI benefits from requiring only a single set of quantities (or revenues), those of period 0, so that only the prices have to be collected on a regular monthly basis. A time series of Paasche CPI on the other hand requires data on both prices and quantities (or revenues) in each succesive period. In real life, expenditure patterns change from period to period as new commodities become available and as consumer tastes change. 3. Sources of bias in price indices The weakness of consumer price indices comes from its conception, i.e. the fixed basket becomes less and less representative over time as consumers respond to price changes and new choices. The upward bias could be estimated to 1 percentage point, which is partially due to improper handling of new products and problems in adjusting for quality change in existing products. The upward bias could create an annual increase in indexed benefits, like pensions, and a real tax cut. Among the biggest problems are quality adjustment and item substitution. Item sustitution may be due to changes in fashion, tastes, income and technology. Also, consumers tend to change outlets where they purchase products. 4. Consequences of overstatement or understatement of price indices Upward or downdward bias in CPI could adversely affect government expenditure, receipts, the wellfare of citizens who get pensions and social security benefits that are indexed to CPI. The main effect could be wrong estimation of the GDP growth, because of biased deflators. This could also lead to poor policy government and monetary authorities. It could also affect private companies beacuse of escalation clauses in their contracts. Judging Croatian practice and above mentioned possible sources of bias, we conlcude that CPI and PPI are overestimated, thus resulting in underestimation on Croatian GDP and volume of industrial production

consumer price index; production price index; Laspeyres index; Paasche index; hedonic index

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