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Measurement Bias in the Canadian Consumer Price Index: An Update

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The consumer price index (CPI) is the most commonly used measure to track changes in the overall level of prices. Since it departs from a true cost-of-living index, the CPI is subject to four types of measurement bias—commodity substitution, outlet substitution, new goods and quality adjustment. The author updates previous Bank of Canada estimates of measurement bias in the Canadian CPI by examining these four sources of potential bias. He finds the total measurement bias over the 2005–11 period to be about 0.5 percentage point per year, consistent with the Bank’s earlier findings. Slightly more than half of this bias is caused by the fixed nature of the CPI basket of goods and services.

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  • Patrick Sabourin, 2012. "Measurement Bias in the Canadian Consumer Price Index: An Update," Bank of Canada Review, Bank of Canada, vol. 2012(Summer), pages 1-11.
  • Handle: RePEc:bca:bcarev:v:2012:y:2012:i:summer12:p:1-11
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    File URL: http://www.bankofcanada.ca/wp-content/uploads/2012/08/boc-review-summer12-sabourin.pdf
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    Cited by:

    1. Oleksiy Kryvtsov & Rhys R. Mendes, 2015. "The Optimal Level of the Inflation Target: A Selective Review of the Literature and Outstanding Issues," Discussion Papers 15-8, Bank of Canada.

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