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The Boskin Commission Report: A Retrospective One Decade Later

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  • Robert J. Gordon

Abstract

This paper provides a retrospective on the 1996 Boskin Commission Report, Toward a More Accurate Measure of the Cost of Living, and its famous estimate that the CPI in 1995-96 was upward biased by 1.1 percent per year. The paper summarizes the report's methods, findings, and recommendations, and then reviews the criticisms that appeared soon after the Report was issued. Post-Boskin changes in the CPI are summarized and assessed, as is recent research on related issues. The paper sharply distinguishes two questions. First, with what we know now, what should the Commission have concluded about CPI bias in 1995-96? Second, what is the bias now after the many improvements introduced into the CPI since the Commission's Report? About the first question, my own recent research on apparel and rental housing indicates a substantial downward bias in the CPI over much of the twentieth century, diminishing in size after 1985. Incorporating these findings into the Boskin matrix would reduce its 0.6 percent annual upward bias due to quality change and new products to a smaller 0.4 percent bias. However, this is more than offset by the stunning discrepancy over 2000-06 in the chain-weighted C-CPI-U compared to the traditional CPI-U, indicating that the Commission greatly understated the magnitude of upper-level substitution bias. This retrospective evaluation suggests that the Boskin bias estimate for 1995-96 should have been 1.2 to 1.3 percent, not 1.1 percent. Current upward bias in the CPI is estimated to have declined from the revised 1.2-1.3 percent in the Boskin era to about 0.8 percent today. Yet the Boskin report, like most contemporary studies of quality change, failed to place sufficient value on the value of new products and on increased longevity. Allowing for these, today's bias is at least 1.0 percent per year or perhaps even higher.

Suggested Citation

  • Robert J. Gordon, 2006. "The Boskin Commission Report: A Retrospective One Decade Later," NBER Working Papers 12311, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:12311
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    References listed on IDEAS

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    2. repec:ucp:bknber:9780226304557 is not listed on IDEAS
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    Cited by:

    1. Etienne Gagnon & David López-Salido & Jason Sockin, 2017. "The Cyclicality of Sales, Regular, and Effective Prices: Business Cycle and Policy Implications: Comment," American Economic Review, American Economic Association, vol. 107(10), pages 3229-3242, October.
    2. Bruce D. Meyer & James X. Sullivan, 2009. "Five Decades of Consumption and Income Poverty," NBER Working Papers 14827, National Bureau of Economic Research, Inc.
    3. Hammermann, Felix & Flanagan, Mark, 2007. "What Explains Persistent Inflation Differentials Across Transition Economies?," Kiel Working Papers 1373, Kiel Institute for the World Economy (IfW).
    4. Bilbiie, Florin O. & Fujiwara, Ippei & Ghironi, Fabio, 2014. "Optimal monetary policy with endogenous entry and product variety," Journal of Monetary Economics, Elsevier, vol. 64(C), pages 1-20.
    5. John G. Fernald, 2015. "Productivity and Potential Output before, during, and after the Great Recession," NBER Macroeconomics Annual, University of Chicago Press, vol. 29(1), pages 1-51.
    6. Cuddington, John T, 2010. "Long-term trends in the Real real prices of primary commodities: Inflation bias and the Prebisch-Singer hypothesis," Resources Policy, Elsevier, vol. 35(2), pages 72-76, June.
    7. Byrne, David M. & Corrado, Carol, 2015. "Prices for Communications Equipment: Rewriting the Record," Finance and Economics Discussion Series 2015-69, Board of Governors of the Federal Reserve System (U.S.).
    8. László Bokor, 2010. "Optimality criteria of hybrid inflation-price level targeting," MNB Working Papers 2010/8, Magyar Nemzeti Bank (Central Bank of Hungary).
    9. Roberto M. Billi & George A. Kahn, 2008. "What is the optimal inflation rate?," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 5-28.
    10. Marshall Reinsdorf & Jack E. Triplett, 2009. "A Review of Reviews: Ninety Years of Professional Thinking About the Consumer Price Index," NBER Chapters,in: Price Index Concepts and Measurement, pages 17-83 National Bureau of Economic Research, Inc.
    11. Dew-Becker, Ian & Gordon, Robert J, 2008. "Controversies about the Rise in American Inequality: A Survey," CEPR Discussion Papers 6817, C.E.P.R. Discussion Papers.
    12. Lieu, Pang-Tien & Liang, Jung-Hui & Chen, Jui-Hui, 2008. "Consumer preferences and cost of living in Taiwan," Journal of Asian Economics, Elsevier, vol. 19(3), pages 224-235, June.
    13. Mark J Flanagan & Felix Hammermann, 2007. "What Explains Persistent Inflation Differentials Across Transition Economies?," IMF Working Papers 07/189, International Monetary Fund.
    14. Alcalá, Francisco, 2009. "Time, Quality and Growth," UMUFAE Economics Working Papers 4811, DIGITUM. Universidad de Murcia.
    15. Daniel Melser & Iqbal A. Syed, 2013. "Prices over the Product Life Cycle: Implications for Quality-Adjustment and the Measurement of Inflation," Discussion Papers 2013-26, School of Economics, The University of New South Wales.
    16. Guy M Meredith, 2007. "Debt Dynamics and Global Imbalances; Some Conventional Views Reconsidered," IMF Working Papers 07/4, International Monetary Fund.
    17. Michelle L. Barnes & Zvi Bodie & Robert K. Triest & J. Christina Wang, 2009. "TIPS scorecard: are TIPS accomplishing what they were supposed to accomplish?: can they be improved?," Public Policy Discussion Paper 09-8, Federal Reserve Bank of Boston.
    18. Schmitt-Grohé, Stephanie & Uribe, Martín, 2012. "On quality bias and inflation targets," Journal of Monetary Economics, Elsevier, vol. 59(4), pages 393-400.

    More about this item

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

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