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The CPI, Mirror of the Cost of Living in France? Evidence based on the Engel Curves Analysis

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  • M.-É. CLERC

    (Insee)

  • É. COUDIN

    (Insee)

Abstract

This paper studies the existence of an diverging trend between the French Consumer Price Index and the cost of living, by an intertemporal comparison of food Engel curves. We use the methodology developed by Costa (2001) and Hamilton (2001). CPI bias estimates are derived from the gap between the CPI-deflated Engel curves estimated at different dates. The French CPI series and the French Household Budget surveys (Budget de Famille) from 1979 to 2006 are used. The analysis is performed by categories of households. A large range of techniques is used to alleviate potential problems that may occur with survey data: robust estimation, instrumental techniques, or rescaling in order to correct potential imperfect declarations. The results differ according to the choice of using raw survey data or data rescaled on National Accounts aggregates. However, even though the conclusions on the magnitudes of the biases differ, bias estimates are always non-negative. As a consequence, the results found do not support the widespread presumption that the French CPI would have under-estimated changes in the cost of living between 1979 and 2006.

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File URL: http://www.insee.fr/fr/publications-et-services/docs_doc_travail/G2010-04.pdf
File Function: Document de travail de la DESE numéro G2010-04
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Bibliographic Info

Paper provided by Institut National de la Statistique et des Etudes Economiques, DESE in its series Documents de Travail de la DESE - Working Papers of the DESE with number g2010-04.

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Date of creation: 2010
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Handle: RePEc:crs:wpdeee:g2010-04

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Keywords: Cost of Living; Consumer Price Index; CPI bias; Cost of living index; Engel law; Engel curves;

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  1. Bruce W. Hamilton, 2001. "Using Engel's Law to Estimate CPI Bias," American Economic Review, American Economic Association, vol. 91(3), pages 619-630, June.
  2. 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.
  3. 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.
  4. 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.
  5. Deaton, Angus, 1995. "Data and econometric tools for development analysis," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 3, chapter 33, pages 1785-1882 Elsevier.
  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.
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