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Getting Prices Right: What Should Be Done?

  • Angus Deaton

Much of the profession accepts that the CPI likely overstates the rate of increase of the cost-of-living. It is less clear that there are sound and feasible steps that the BLS can adopt to improve matters in the short run. There are unresolved conceptual and identification problems in the measurement of quality. Superlative price indexes are not feasible, and feasible approximations are not superlative, and may not even be better. The need for a single index that aggregates over heterogeneous consumers with different incomes, tastes, and needs casts serious doubt on the cost-of-living approach.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.12.1.37
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Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 12 (1998)
Issue (Month): 1 (Winter)
Pages: 37-46

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Handle: RePEc:aea:jecper:v:12:y:1998:i:1:p:37-46
Note: DOI: 10.1257/jep.12.1.37
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  1. Muellbauer, John, 1976. "Community Preferences and the Representative Consumer," Econometrica, Econometric Society, vol. 44(5), pages 979-99, September.
  2. Griliches, Zvi & Cockburn, Iain, 1994. "Generics and New Goods in Pharmaceutical Price Indexes," American Economic Review, American Economic Association, vol. 84(5), pages 1213-32, December.
  3. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
  4. Pollak, Robert A, 1980. "Group Cost-of-Living Indexes," American Economic Review, American Economic Association, vol. 70(2), pages 273-78, May.
  5. Hausman, Jerry, 1999. "Cellular Telephone, New Products, and the CPI," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(2), pages 188-94, April.
  6. Matthew D. Shapiro & David W. Wilcox, 1996. "Mismeasurement in the Consumer Price Index: An Evaluation," NBER Chapters, in: NBER Macroeconomics Annual 1996, Volume 11, pages 93-154 National Bureau of Economic Research, Inc.
  7. Fisher, Franklin M & Griliches, Zvi, 1995. "Aggregate Price Indices, New Goods, and Generics," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 229-44, February.
  8. repec:cup:cbooks:9780521296762 is not listed on IDEAS
  9. Brent R. Moulton & Karin E. Moses, 1997. "Addressing the Quality Change Issue in the Consumer Price Index," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 305-366.
  10. Brent R. Moulton, 1996. "Bias in the Consumer Price Index: What Is the Evidence?," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 159-177, Fall.
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