The substitution bias of the consumer price index
AbstractThe paper uses elementary consumer theory to propose an inflation independent ratio definition of the substitution bias of the Laspeyres consumer price index, and derives an approximate substitution bias which depends on the size of the price change as measured by a norm in the Laspeyres plane and on the elasticity of substitution in the direction of the price change. This norm or distance measure can be interpreted as a price substitution index which yields useful information about the movements of relative prices. Norwegian CPI data are used to quantify these relationships.
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Bibliographic InfoPaper provided by Research Department of Statistics Norway in its series Discussion Papers with number 451.
Date of creation: Mar 2006
Date of revision:
consumer price index (CPI); substitution bias; elasticity of substitution.;
Find related papers by JEL classification:
- C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
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