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Does the CPI Mirror the Cost of Living? Engel's Law Suggests Not in Norway

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  • Erling Røed Larsen
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    Abstract

    There is considerable interest in identifying the magnitude of the difference between increases in the CPI and the cost of living. In this paper, the technique proposed by Hamilton (2001) to measure this discrepancy is used and extended for Norway in the 1990s. While Hamilton finds that the CPI in the United States overstates the cost of living for the period 1974-1991, application of his technique to Norwegian data for 1990-1999 indicates that the CPI understates the cost of living. The Norwegian CPI rose by 22 percent, but a typical household behaved as if the cost of living had increased by 35 percent. For some household types, the increase was substantially larger. Copyright The editors of the "Scandinavian Journal of Economics" 2007 .

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    Article provided by Wiley Blackwell in its journal Scandinavian Journal of Economics.

    Volume (Year): 109 (2007)
    Issue (Month): 1 (03)
    Pages: 177-195

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    Handle: RePEc:bla:scandj:v:109:y:2007:i:1:p:177-195
    Contact details of provider: Web page: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1467-9442

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    Cited by:

    1. 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.
    2. Almås, Ingvild & Johnsen, Åshild Auglænd, 2012. "The cost of living in China: Implications for inequality and poverty," Discussion Paper Series in Economics 21/2012, Department of Economics, Norwegian School of Economics.
    3. Emi Nakamura & Jón Steinsson & Miao Liu, 2016. "Are Chinese Growth and Inflation Too Smooth? Evidence from Engel Curves," American Economic Journal: Macroeconomics, American Economic Association, vol. 8(3), pages 113-144, July.
    4. 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.
    5. 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.
    6. Erling Røed Larsen, 2014. "Is the Engel curve approach viable in the estimation of alternative PPPs?," Empirical Economics, Springer, vol. 47(3), pages 881-904, November.
    7. Beatty, Timothy K.M. & Larsen, Erling Røed & Sommervoll, Dag Einar, 2010. "Using house prices to compute the price of housing in the CPI," Economics Letters, Elsevier, vol. 106(3), pages 238-240, March.
    8. Gaddis,Isis, 2016. "Prices for poverty analysis in Africa," Policy Research Working Paper Series 7652, The World Bank.
    9. Wynne, Mark A., 2008. "How should central banks define price stability?," Globalization and Monetary Policy Institute Working Paper 08, Federal Reserve Bank of Dallas.
    10. Trevon D. Logan, 2008. "Are Engel Curve Estimates of CPI Bias Biased?," NBER Working Papers 13870, National Bureau of Economic Research, Inc.

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