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A spatial cost of living index for Colombia using a microeconomic approach and censored data

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  • Laura H. Atuesta
  • Dusan Paredes Araya

Abstract

This article describes a methodology to calculate a Spatial Cost of Living (SCOL) index using the Colombian data for 2006 that considers the microeconomic behaviour of households. Estimating an Almost Ideal Demand System (AIDS) to recover the expenditure function of the 23 main Colombian cities, the index is compared to the fixed basket approach and to an alternative methodology proposed by Romero (2005). This comparison suggests that the index is biased when the substitution effects are not considered, and this bias increases when the difference in expenditure levels between cities increases. According to our calculations, Bogota is still the most expensive city in the country.

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File URL: http://hdl.handle.net/10.1080/13504851.2012.657347
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 19 (2012)
Issue (Month): 18 (December)
Pages: 1799-1805

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Handle: RePEc:taf:apeclt:v:19:y:2012:i:18:p:1799-1805

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  1. Dusan Paredes & Patricio Aroca, 2008. "Metodología para Estimar un Indice Regional de Costo de Vivienda en Chile," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 45(131), pages 129-143.
  2. Darwin Cortes & Jorge Perez, 2010. "El Consumo de los Hogares Colombianos, 2006-2007: Estimación de Sistemas de Demanda," REVISTA DESARROLLO Y SOCIEDAD, UNIVERSIDAD DE LOS ANDES-CEDE.
  3. Kokoski, Mary F, 1987. "Problems in the Measurement of Consumer Cost-of-Living Indexes," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(1), pages 39-46, January.
  4. repec:kas:wpaper:2005-78 is not listed on IDEAS
  5. Michael J. Boskin, 1998. "Consumer Prices, the Consumer Price Index, and the Cost of Living," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 3-26, Winter.
  6. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June.
  7. J. Scott Shonkwiler & Steven T. Yen, 1999. "Two-Step Estimation of a Censored System of Equations," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(4), pages 972-982.
  8. Keen, Michael, 1986. "Zero Expenditures and the Estimation of Engel Curves," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 1(3), pages 277-86, July.
  9. Koo, Jahyeong & Phillips, Keith R & Sigalla, Fiona D, 2000. "Measuring Regional Cost of Living," Journal of Business & Economic Statistics, American Statistical Association, vol. 18(1), pages 127-36, January.
  10. Deaton, Angus, 1987. "Estimation of own- and cross-price elasticities from household survey data," Journal of Econometrics, Elsevier, vol. 36(1-2), pages 7-30.
  11. Dusan Paredes, 2011. "A methodology to compute regional housing price index using matching estimator methods," The Annals of Regional Science, Springer, vol. 46(1), pages 139-157, February.
  12. Heien, Dale & Wessells, Cathy Roheim, 1990. "Demand Systems Estimation with Microdata: A Censored Regression Approach," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(3), pages 365-71, July.
  13. Ray, Ranjan, 1983. "Measuring the costs of children : An alternative approach," Journal of Public Economics, Elsevier, vol. 22(1), pages 89-102, October.
  14. Russel J. Cooper & Keith R. McLaren, 1992. "An Empirically Oriented Demand System with Improved Regularity Properties," Canadian Journal of Economics, Canadian Economics Association, vol. 25(3), pages 652-68, August.
  15. Federico Perali & Jean-Paul Chavas, 2000. "Estimation of Censored Demand Equations from Large Cross-Section Data," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(4), pages 1022-1037.
  16. Braithwait, Steven D, 1980. "The Substitution Bias of the Laspeyres Price Index: An Analysis Using Estimated Cost-of-Living Indexes," American Economic Review, American Economic Association, vol. 70(1), pages 64-77, March.
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