Using Engel Curves to Measure CPI Bias for Indonesia
AbstractTo 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 studies from several countries show the CPI is a biased measure of changes in the cost of living, leading to potentially wrong estimates of the rate of growth of real income. In this paper CPI bias for Indonesia is calculated 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 CPI bias was initially negative during the Asian Crisis but has been positive since 2000. Over the entire period, CPI bias has averaged four percent annually, equivalent to almost one-third of the measured inflation rate.
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Bibliographic InfoPaper provided by University of Waikato, Department of Economics in its series Working Papers in Economics with number 12/06.
Length: 26 pages
Date of creation: 21 Jun 2012
Date of revision:
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CPI bias; Engel curve; inflation; measurement error;
Other versions of this item:
- Susan Olivia & John Gibson, 2012. "Using Engel Curves to Measure CPI Bias for Indonesia," Monash Econometrics and Business Statistics Working Papers 13/12, Monash University, Department of Econometrics and Business Statistics.
- C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
This paper has been announced in the following NEP Reports:
- NEP-AGR-2012-07-01 (Agricultural Economics)
- NEP-ALL-2012-07-01 (All new papers)
- NEP-SEA-2012-07-01 (South East Asia)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- John Gibson & Grant Scobie, 2010. "Using Engel curves to estimate CPI bias in a small, open, inflation-targeting economy," Applied Financial Economics, Taylor and Francis Journals, vol. 20(17), pages 1327-1335.
- Beatty, Timothy K.M. & Larsen, Erling Roed, 2004.
"Using Engel Curves To Estimate Bias In The Canadian Cpi As A Cost Of Living Index,"
15836, University of British Columbia, Food and Resource Economics.
- Timothy Beatty & Erling Røed Larsen, 2005. "Using Engel curves to estimate bias in the Canadian CPI as a cost of living index," Canadian Journal of Economics, Canadian Economics Association, vol. 38(2), pages 482-499, May.
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Econometric Society 2004 North American Summer Meetings
504, Econometric Society.
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- John Gibson & Steven Stillman & Trinh Le, 2004. "CPI Bias and Real Living Standards in Russia During the Transition," Working Papers in Economics 04/02, University of Waikato, Department of Economics.
- 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.
- Filho, Irineu de Carvalho & Chamon, Marcos, 2012. "The myth of post-reform income stagnation: Evidence from Brazil and Mexico," Journal of Development Economics, Elsevier, vol. 97(2), pages 368-386.
- 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.
- 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.
- 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.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- 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
- 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.
- 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.
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