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Getting Prices Right: What Should Be Done?

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  • Angus Deaton

Abstract

Much of the profession accepts that the CPI likely overstates the rate of increase of the cost-of-living. It is less clear that there are sound and feasible steps that the BLS can adopt to improve matters in the short run. There are unresolved conceptual and identification problems in the measurement of quality. Superlative price indexes are not feasible, and feasible approximations are not superlative, and may not even be better. The need for a single index that aggregates over heterogeneous consumers with different incomes, tastes, and needs casts serious doubt on the cost-of-living approach.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.12.1.37
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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 12 (1998)
Issue (Month): 1 (Winter)
Pages: 37-46

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Handle: RePEc:aea:jecper:v:12:y:1998:i:1:p:37-46

Note: DOI: 10.1257/jep.12.1.37
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  1. Brent R. Moulton, 1996. "Bias in the Consumer Price Index: What Is the Evidence?," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 159-177, Fall.
  2. Brent R. Moulton & Karin E. Moses, 1997. "Addressing the Quality Change Issue in the Consumer Price Index," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 305-366.
  3. Jerry Hausman, 1997. "Cellular Telephone, New Products and the CPI," NBER Working Papers 5982, National Bureau of Economic Research, Inc.
  4. Matthew D. Shapiro & David W. Wilcox, 1996. "Mismeasurement in the Consumer Price Index: An Evaluation," NBER Chapters, in: NBER Macroeconomics Annual 1996, Volume 11, pages 93-154 National Bureau of Economic Research, Inc.
  5. Muellbauer, John, 1976. "Community Preferences and the Representative Consumer," Econometrica, Econometric Society, vol. 44(5), pages 979-99, September.
  6. Fisher, Franklin M & Griliches, Zvi, 1995. "Aggregate Price Indices, New Goods, and Generics," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 229-44, February.
  7. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762.
  8. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
  9. Griliches, Z. & Cockborn, I., 1993. "Generics and New Goods in Pharmaceutical Price Indexes," Harvard Institute of Economic Research Working Papers 1664, Harvard - Institute of Economic Research.
  10. Pollak, Robert A, 1980. "Group Cost-of-Living Indexes," American Economic Review, American Economic Association, vol. 70(2), pages 273-78, May.
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