Biases in cross-spave comparisons through cross-time price indexes : the case of Russia

Abstract

Lacking data on price levels across locations (countries, national regions, etc.) for crossspace comparisons, researchers resort to local consumer price indexes (CPIs) over time to evaluate these levels.This approach unfortunately fails to specify, even generally, the exactness of such proxies.Worse, the method is silent on whether the results are consistent, at least qualitatively, with those obtained using actual price levels.This paper aims to find an answer empirically, using data across Russian regions.Through comparison of CPIproxied price levels with direct evaluations of regional price levels (i.e.Surinov spatial price indexes and the costs of a purchasing power basket), biases that distort the qualitative pattern of inter-regional differences are identified.Cross-region distributions for real income (calculated with CPI-proxied and directly evaluated price levels) for several points in time are estimated and compared.The CPI-induced biases are found to generally overstate inter-regional disparities. JEL Classification: C43, E31, P22, R19 Keywords: consumer price index, spatial price index, real income, nonhomothetic preferences, Russia, Russian regions