This paper uses revealed preference restrictions and nonparametric statistical methods to bound the true cost-of-living index which corresponds most closely to the UK Retail Prices Index (RPI). This is used to assess the RPI formula for substitution bias. We show that neither the direction nor the existence of bias in the RPI formula can be established on a priori theoretical grounds. However, we find empirical evidence of a variable, but generally positive bias in the rate of inflation recorded by the RPI formula.
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Volume (Year): 111 (2001) Issue (Month): 472 (June) Pages: F357-82 Download reference. The following formats are available: HTML
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