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Using Engel curves to measure CPI bias for Indonesia

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Author Info

  • Susan Olivia
  • John Gibson

Abstract

To measure real income growth over time, a price index is needed to adjust for changes in the cost of living. The consumer price index (CPI) is often used for this task; but several country studies show that it is a biased measure of such changes, leading to potentially inaccurate estimates of the rate of real income growth. This paper calculates CPI bias for urban Indonesia by estimating food Engel curves for households with the same level of CPI-deflated incomes at four different points in time between 1993 and 2008. The results suggest that CPI bias was negative during the 1997--98 crisis but has been positive since 2000. From 1993 to 2008, CPI bias averaged 4% annually, equivalent to almost one-third of the measured inflation rate.

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File URL: http://hdl.handle.net/10.1080/00074918.2013.772942
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Bulletin of Indonesian Economic Studies.

Volume (Year): 49 (2013)
Issue (Month): 1 (April)
Pages: 85-101

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Handle: RePEc:taf:bindes:v:49:y:2013:i:1:p:85-101

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References

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  1. Gibson, John & Stillman, Steven & Le, Trinh, 2008. "CPI bias and real living standards in Russia during the transition," Journal of Development Economics, Elsevier, vol. 87(1), pages 140-160, August.
  2. Beatty, Timothy K.M. & Larsen, Erling Roed, 2004. "Using Engel Curves To Estimate Bias In The Canadian Cpi As A Cost Of Living Index," Working Papers 15836, University of British Columbia, Food and Resource Economics.
  3. Irineu E. Carvalho Filho & Marcos Chamon, 2008. "The Myth of Post-Reform Income Stagnation," IMF Working Papers 08/197, International Monetary Fund.
  4. Asep Suryahadi & Sudarno Sumarto & Lant Pritchett, 2003. "Evolution of Poverty During the Crisis in Indonesia," Asian Economic Journal, East Asian Economic Association, vol. 17(3), pages 221-241, 09.
  5. de Carvalho Filho, Irineu & Chamon, Marcos, 2011. "The myth of post-reform income stagnation: Evidence from Brazil and Mexico," MPRA Paper 28532, University Library of Munich, Germany.
  6. John Gibson & Grant Scobie, 2010. "Using Engel curves to estimate CPI bias in a small, open, inflation-targeting economy," Applied Financial Economics, Taylor & Francis Journals, vol. 20(17), pages 1327-1335.
  7. Chul Chung & John Gibson & Bonggeun Kim, 2010. "CPI Mismeasurements and Their Impacts on Economic Management in Korea," Asian Economic Papers, MIT Press, vol. 9(1), pages 1-15, January.
  8. Garry F. Barrett & Matthew Brzozowski, 2010. "Using Engel Curves to Estimate the Bias in the Australian CPI," The Economic Record, The Economic Society of Australia, vol. 86(272), pages 1-14, 03.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Is the Indonesian CPI an accurate measure of the cost of living?
    by Susan Olivia in East Asia Forum on 2012-08-11 12:00:07
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Cited by:
  1. Ingvild Almås & Anders Kjelsrud & Rohini Somanathan, 2013. "A Behaviour-based Approach to the Estimation of Poverty in India," CESifo Working Paper Series 4122, CESifo Group Munich.

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