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Does One Size Fit All? The CPI and Canadian Seniors

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  • Matthew Brzozowski

Abstract

The paper shows that the consumer price index (CPI) is often a very poor measure of inflation rates relevant to individual senior households. A high proportion of the inflation rates measured by household-specific price indexes falls more than one percentage point above or below the CPI inflation rate. Moreover, I use the Engel method proposed by Hamilton and Costa and demonstrate that the CPI inflation rate overestimated the average inflation rate faced by Canadian senior households during the 1970s and the 1980s but has accurately measured average inflation for such households during the 1990s. Finally, I estimate costs of oversta ting inflation adjustments to Canada Pension Plan.

Suggested Citation

  • Matthew Brzozowski, 2006. "Does One Size Fit All? The CPI and Canadian Seniors," Canadian Public Policy, University of Toronto Press, vol. 32(4), pages 387-412, December.
  • Handle: RePEc:cpp:issued:v:32:y:2006:i:4:p:387-412
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    References listed on IDEAS

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    1. Adonis Yatchew, 1998. "Nonparametric Regression Techniques in Economics," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 669-721, June.
    2. Allan Crawford, 1998. "Measurement biases in the Canadian CPI: An update," Bank of Canada Review, Bank of Canada, vol. 1998(Spring), pages 39-56.
    3. James Banks & Richard Blundell & Arthur Lewbel, 1997. "Quadratic Engel Curves And Consumer Demand," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 527-539, November.
    4. Michael J. Boskin, 1998. "Consumer Prices, the Consumer Price Index, and the Cost of Living," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 3-26, Winter.
    5. Angus Deaton, 1998. "Getting Prices Right: What Should Be Done?," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 37-46, Winter.
    6. W. Erwin Diewert, 1998. "Index Number Issues in the Consumer Price Index," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 47-58, Winter.
    7. 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.
    8. Katharine G. Abraham & John S. Greenlees & Brent R. Moulton, 1998. "Working to Improve the Consumer Price Index," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 27-36, Winter.
    9. Bruce W. Hamilton, 2001. "Using Engel's Law to Estimate CPI Bias," American Economic Review, American Economic Association, vol. 91(3), pages 619-630, June.
    10. Wood, Robert G & Corcoran, Mary E & Courant, Paul N, 1993. "Pay Differences among the Highly Paid: The Male-Female Earnings Gap in Lawyers' Salaries," Journal of Labor Economics, University of Chicago Press, vol. 11(3), pages 417-441, July.
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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, March.
    2. Scrimgeour, Dean & Gorry, James, 2015. "Using Engel Curves to Estimate CPI Bias for the Elderly," Working Papers 2015-03, Department of Economics, Colgate University, revised 08 Jun 2015.

    More about this item

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • D1 - Microeconomics - - Household Behavior
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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