Price Index Numbers under Large-Scale Demand Shocks–The Japanese Experience of the COVID-19 Pandemic

We investigate the prices and quantities of face masks when the 2020 COVID-19 pandemic was particularly serious to understand the impact of demand shocks on the cost of living index (COLI). Using a recently developed index number formula that is exact for the constant elasticity of substitution util...

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Bibliographic Details
Published in:Journal of official statistics 2022-03, Vol.38 (1), p.301-317
Main Authors: Abe, Naohito, Inoue, Toshikatsu, Sato, Hideyasu
Format: Article
Language:English
Subjects:
coronavirus
Coronaviruses
Cost of living
COVID-19
Demand
demand shocks
Empirical analysis
Indexes
Masks
pandemic
Pandemics
price index
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Summary:We investigate the prices and quantities of face masks when the 2020 COVID-19 pandemic was particularly serious to understand the impact of demand shocks on the cost of living index (COLI). Using a recently developed index number formula that is exact for the constant elasticity of substitution utility function with variable preferences, we quantified the degree of demand shock caused by the pandemic. Our empirical analysis revealed that shifts in preferences during the pandemic were so large that the COLI with variable tastes became very different from the standard superlative indexes. While the prices of face masks decreased in the Fisher index in May 2020 by 0.76% per week, the COLI increased by 1.92% per week.
ISSN:0282-423X
2001-7367
2001-7367
DOI:10.2478/jos-2022-0016