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Estimating Real Income in the United States from 1888 to 1994: Correcting CPI Bias Using Engel Curves

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  • Dora L. Costa

Abstract

This paper provides the first estimates of overall CPI bias prior to the 1970s and new estimates of bias since the 1970s. It finds that annual CPI bias was -0.1 percent between 1888 and 1919 and rose to 0.7 percent between 1919 and 1935. Annual CPI bias was 0.4 percent in the 1960s and then rose to 2.7 percent between 1972 and 1982 before falling to 0.6 percent between 1982 and 1994. The findings imply that we have underestimated growth rates in true income in the 1920s and 1930s and in the 1970s.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 109 (2001)
Issue (Month): 6 (December)
Pages: 1288-1310

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Handle: RePEc:ucp:jpolec:v:109:y:2001:i:6:p:1288-1310

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Cited by:
  1. Gluzmann, Pablo & Sturzenegger, Federico, 2010. "An Estimation of CPI Biases in Argentina 1985-2005, and its Implications on Real Income Growth and Income Distribution," MPRA Paper 42950, University Library of Munich, Germany.
  2. Fernandez, Viviana, 2012. "Trends in real commodity prices: How real is real?," Resources Policy, Elsevier, vol. 37(1), pages 30-47.
  3. 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.
  4. 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.
  5. Mark A. Wynne, 2005. "An estimate of the measurement bias in the HICP," Working Papers 0509, Federal Reserve Bank of Dallas.
  6. Crafts, Nicholas, 2010. "The Contribution of New Technology to Economic Growth: Lessons from Economic History," CAGE Online Working Paper Series 01, Competitive Advantage in the Global Economy (CAGE).
  7. Dennis, Benjamin N. & Iscan, Talan B., 2007. "Productivity growth and agricultural out-migration in the United States," Structural Change and Economic Dynamics, Elsevier, vol. 18(1), pages 52-74, March.
  8. 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.
  9. Ingvild Almås, 2010. "International Income Inequality: Measuring PPP Bias by Estimating Engel Curves for Food," CESifo Working Paper Series 3247, CESifo Group Munich.
  10. Nicholas Crafts, 2003. "Quantifying the contribution of technological change to economic growth in different eras: a review of the evidence," Economic History Working Papers 22350, London School of Economics and Political Science, Department of Economic History.
  11. 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.
  12. Huffman, Wallace, 2006. "The Story Behind the Post-War Decline in Women's Housework: Prices, Income, Family Size, and Technology Effects in a Demand System," Staff General Research Papers 12601, Iowa State University, Department of Economics.
  13. Bank for International Settlements, 2010. "Monetary policy and the measurement of inflation: prices, wages and expectations," BIS Papers, Bank for International Settlements, number 49, 3.
  14. Michal Pakos, . "Measuring Intratemporal and Intertemporal Substitutions When Both Income and Substitution Effects Are Present: The Role of Consumer Durables," GSIA Working Papers 2007-E29, Carnegie Mellon University, Tepper School of Business.
  15. 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.

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