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Revisiting taste change in cost-of-living measurement

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  • Robert S. Martin

Abstract

This paper derives conditional cost-of-living indexes (COLI) for the Constant Elasticity of Substitution model in the presence of taste change. Recent proposals to incorporate changing tastes reflect a different conceptual target (an unconditional COLI) from a consumer price index (a conditional COLI), and a strong implicit assumption (cardinal utility). Using Nielsen retail scanner data for food and beverage products, I find that tastes can dominate prices in unconditional COLI estimates, while they have smaller impacts on conditional COLI. Using CPI data, I find that category-level tastes have a relatively minor average effect on an all-items price index.

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  • Robert S. Martin, 2019. "Revisiting taste change in cost-of-living measurement," Economic Working Papers 515, Bureau of Labor Statistics.
    • Handle: RePEc:bls:wpaper:515
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    File URL: https://www.bls.gov/osmr/research-papers/2019/pdf/ec190050.pdf
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    Cited by:

    1. Baqaee, David Rezza & Burstein, Ariel, 2021. "Welfare and Output with Income Effects and Taste Shocks," CEPR Discussion Papers 16132, C.E.P.R. Discussion Papers.

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