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CPI mismeasurements and their impacts on economic management in Korea

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  • CPI mismeasurements and their impacts on economic management in Korea
  • Chung, Chul; Gibson, John; Kim, Bonggeun
  • The Earth Institute


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Title CPI mismeasurements and their impacts on economic management in Korea
Similar Titles
Material Type Reports
Author(English)

Chung, Chul; Gibson, John; Kim, Bonggeun

Publisher

[New York]:The Earth Institute

Date 2010
Journal Title; Vol./Issue Asian Economic Papers:Vol. 9(No. 1)
Subject Country South Korea(Asia and Pacific)
Language English
File Type Link
Subject Economy < Economic Administration
Holding COnnecting REpositories

Abstract

We estimate the consumer price index (CPI) bias in Korea by employing the approach of Engel’s Law as suggested by Hamilton (2001). Using Korean panel data (Korean Labor and Income Panel Study) and following Hamilton’s model with a non-linear specification correction, our estimation result shows that the CPI bias over the sample period (2000–05) averaged at least 0.7 percent annually, which implies that about 21 percent of the inflation rate during the sample period can be attributed to the bias. This CPI bias has caused a substantial understatement of the growth in real GDP and contributes to excessive transfers from younger taxpayers to the elderly through indexed pension payments. We discuss the implications of the CPI bias for economic management and policies in Korea.