Causes and Consequences of Bias in the Consumer Price Index as a Measure of the Cost of Living
The accurate measure of prices is fundamental to almost every important issue in economics, from measuring economic progress to the conduct of monetary policy to the indexation of private contracts and public programs and tax rules. This paper reviews the causes of bias in the United States Consumer Price Index (CPI), updates the estimate of such bias (now roughly 0.8 percent per annum) following several improvements by the Bureau of Labor Statistics (BLS), notes the likely far larger substitution bias than previously estimated and calls for a series of priority improvements. Particular attention is called to the over 40 basis point slower growth of the BLS’ C-CPI-U compared to the CPI-U, more than double the early 1990s estimates, which highlights the importance of moving to a formula such as the chained Tornqvist C-CPI that corrects for traditional substitution bias. The implications for mismeasuring the growth of real wages, real median income, and real returns to stocks and bonds are developed, as are the budgetary implications of the overindexing of spending and tax brackets resulting from the overstatement of changes in the cost of living. Copyright IAES 2005
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 33 (2005)
Issue (Month): 1 (March)
|Contact details of provider:|| Web page: http://www.springer.com|
Postal:Suite 650, International Tower, 229 Peachtree Street, N.E., Atlanta, GA 30303
Phone: (404) 965-1555
Fax: (404) 965-1556
Web page: http://www.iaes.org/
More information through EDIRC
|Order Information:||Web: http://www.springer.com/economics/journal/11293/PS2|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bajari, Patrick & Benkard, C. Lanier & Krainer, John, 2004.
"House Prices and Consumer Welfare,"
1840, Stanford University, Graduate School of Business.
- David E. Lebow & Jeremy B. Rudd, 2003. "Measurement Error in the Consumer Price Index: Where Do We Stand?," Journal of Economic Literature, American Economic Association, vol. 41(1), pages 159-201, March.
When requesting a correction, please mention this item's handle: RePEc:kap:atlecj:v:33:y:2005:i:1:p:1-13. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Rebekah McClure)
If references are entirely missing, you can add them using this form.