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Tomoki Fujii
''Decomposing the changes of the Divisia price index: application to inflation in the Philippines''
( 2013, Vol. 33 No.1 )
We decompose the logarithmic change in the Divisia price index into the pure price, substitution, and preference effects, although the latter two effects are hard to distinguish in practice. This decomposition allows us to identify the incidence and contributing factors of inflation. In the Philippines, we find that the preference effect is much smaller than the pure price effect in all provinces. We also find that rich deciles have experienced a higher inflation than poor deciles between 1988 and 2006. However, the gap in the standards of living has actually widened because poor deciles lagged behind in consumption growth.
Keywords: Divisia price index, preference change, decomposition, Philippines
JEL: I3 - Welfare and Poverty: General
O1 - Economic Development: General
Manuscript Received : Nov 26 2012 Manuscript Accepted : Mar 04 2013

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