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Changes in Relative Consumer Prices and the Substitution Bias of the Laspeyres Price Index - Ireland, 1985-2001

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  • R. A. Somerville

    (National University of Ireland, Maynooth)

Abstract

This paper shows that Irish relative consumer prices have changed significantly, 1985- 2001, at the ten commodity-group level. A “true” cost-of-living index is derived from Madden’s (1993) parameter estimates for an Almost Ideal Demand System. Despite relative price changes, the substitution bias of a computed Laspeyres index is small, and the official Consumer Price Index tracks the computed index closely. Superlative indices are also constructed, but are not satisfactory cost-of-living indices in this context. Cost-of-living indices are computed for different income groups, and the impact of inflation in recent years is found to be negatively correlated with income.

Suggested Citation

  • R. A. Somerville, 2004. "Changes in Relative Consumer Prices and the Substitution Bias of the Laspeyres Price Index - Ireland, 1985-2001," The Economic and Social Review, Economic and Social Studies, vol. 35(1), pages 55-82.
  • Handle: RePEc:eso:journl:v:35:y:2004:i:1:p:55-82
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    References listed on IDEAS

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    Cited by:

    1. Colm McCarthy, 2007. "Owner-occupied housing costs and bias in the Irish Consumer Price Index," Working Papers 200707, School of Economics, University College Dublin.
    2. Colgan, Brian & Callan, Tim, 2015. "The Distributional Impact of Inflation: 2003-2014," Research Notes RN2015/3/1, Economic and Social Research Institute (ESRI).

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