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Using Engel curves to estimate bias in the Canadian CPI as a cost of living index

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  • Timothy Beatty
  • Erling Røed Larsen

Abstract

Semiparametric Engel curves are used to infer bias in the Canadian CPI as a Cost of Living Index. The budget share of food has long been used as an indicator of welfare. We compare households with the same levels of CPI deflated total expenditure over the period 1978-2000. Differences in the expenditure share of food are attributed to the CPI failing to capture changes in costs of living. We employ a novel econometric approach using a single index penalized linear spline model. Over the period, we find that the CPI overstated changes in the cost of living between 1.33 and 1.86% for the four household types considered.

Suggested Citation

  • 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.
  • Handle: RePEc:cje:issued:v:38:y:2005:i:2:p:482-499
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    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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