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

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  • 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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Bibliographic 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 C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
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Cited by:
  1. Timothy K.M. Beatty & Erling Røed Larsen & Dag Einar Sommervoll, 2005. "Measuring the Price of Housing Consumption for Owners in the CPI," Discussion Papers 427, Research Department of Statistics Norway.
  2. Beatty, Timothy K.M. & Larsen, Erling Røed & Sommervoll, Dag Einar, 2010. "Using house prices to compute the price of housing in the CPI," Economics Letters, Elsevier, vol. 106(3), pages 238-240, March.
  3. Bonggeun Kim & John Gibson & Chul Chung, 2009. "Using Panel Data to Exactly Estimate Income Under-Reporting by the Self Employed," Labor Economics Working Papers 22996, East Asian Bureau of Economic Research.
  4. Almås, Ingvild & Johnsen, Åshild Auglænd, 2012. "The cost of living in China: Implications for inequality and poverty," Discussion Paper Series in Economics 21/2012, Department of Economics, Norwegian School of Economics.
  5. 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.
  6. Ingvild Almås, 2010. "International Income Inequality: Measuring PPP Bias by Estimating Engel Curves for Food," CESifo Working Paper Series 3247, CESifo Group Munich.
  7. Mark A. Wynne, 2008. "How should central banks define price stability?," Globalization and Monetary Policy Institute Working Paper 08, Federal Reserve Bank of Dallas.
  8. John Gibson & Bonggeun Kim & Chul Chung, 2008. "Using Panel Data to Exactly Estimate Under-Reporting by the Self-Employed," Working Papers in Economics 08/15, University of Waikato, Department of Economics.
  9. Ingvild Almas & Anders Kjelsrud & Rohini Somanathan, 2013. "A Behaviour-Based Approach To The Estimation Of Poverty In India," Working papers 226, Centre for Development Economics, Delhi School of Economics.
  10. Susan Olivia & John Gibson, 2012. "Using Engel Curves to Measure CPI Bias for Indonesia," Working Papers in Economics 12/06, University of Waikato, Department of Economics.
  11. John Gibson & Steven Stillman, 2004. "CPI Bias and Real Living Standards in Russia During The Transition," Econometric Society 2004 North American Summer Meetings 504, Econometric Society.
  12. Irineu E. Carvalho Filho & Marcos Chamon, 2008. "The Myth of Post-Reform Income Stagnation: Evidence from Brazil and Mexico," IMF Working Papers 08/197, International Monetary Fund.
  13. M.-É. Clerc & É. Coudin, 2010. "The CPI, Mirror of the Cost of Living in France? Evidence based on the Engel Curves Analysis," Documents de Travail de la DESE - Working Papers of the DESE g2010-04, Institut National de la Statistique et des Etudes Economiques, DESE.
  14. Irineu E. Carvalho Filho & Marcos Chamon, 2006. "The Myth of Post-Reform Income Stagnation in Brazil," IMF Working Papers 06/275, International Monetary Fund.
  15. James Rossiter, 2005. "Measurement Bias in the Canadian Consumer Price Index," Working Papers 05-39, Bank of Canada.
  16. Trevon D. Logan, 2008. "Are Engel Curve Estimates of CPI Bias Biased?," NBER Working Papers 13870, National Bureau of Economic Research, Inc.

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