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Using Engel curves to estimate bias in the Canadian CPI as a cost of living index

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Author Info
Timothy Beatty
Erling Røed Larsen
Abstract

Semiparametric Engel curves are used to infer bias in the Canadian CPI as a Cost of Living Index. The budget share of food has long been used as an indicator of welfare. We compare households with the same levels of CPI deflated total expenditure over the period 1978-2000. Differences in the expenditure share of food are attributed to the CPI failing to capture changes in costs of living. We employ a novel econometric approach using a single index penalized linear spline model. Over the period, we find that the CPI overstated changes in the cost of living between 1.33 and 1.86% for the four household types considered.

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File URL: http://economics.ca/cgi/xms?jab=v38n2/08.pdf
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Publisher Info
Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 38 (2005)
Issue (Month): 2 (May)
Pages: 482-499
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Handle: RePEc:cje:issued:v:38:y:2005:i:2:p:482-499

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Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office CIREQ-C.R.D.E., Université de Montréal C.P. 6128, succursale Centre-ville Montréal, Québec, H3C 3J7, Canada
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Find related papers by JEL classification:
D1 - Microeconomics - - Household Behavior
C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General

Cited by:
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  1. Matthew Brzozowski, 2005. "Does One Size Fit All? The CPI and Canadian Seniors," Social and Economic Dimensions of an Aging Population Research Papers 130, McMaster University. [Downloadable!]
  2. Mark A. Wynne, 2008. "How should central banks define price stability?," Globalization and Monetary Policy Institute Working Paper 08, Federal Reserve Bank of Dallas. [Downloadable!]
  3. Marcos Chamon & Irineu de Carvalho Filho, 2006. "The Myth of Post-Reform Income Stagnation in Brazil," IMF Working Papers 06/275, International Monetary Fund. [Downloadable!]
  4. James Rossiter, 2005. "Measurement Bias in the Canadian Consumer Price Index," Working Papers 05-39, Bank of Canada. [Downloadable!]
  5. Trevon D. Logan, 2008. "Are Engel Curve Estimates of CPI Bias Biased?," NBER Working Papers 13870, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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