IDEAS home Printed from https://ideas.repec.org/p/wai/econwp/12-06.html
   My bibliography  Save this paper

Using Engel Curves to Measure CPI Bias for Indonesia

Author

Listed:

Abstract

To measure real income growth over time a price index is needed to adjust for changes in the cost of living. The Consumer Price Index (CPI) is often used for this task but studies from several countries show the CPI is a biased measure of changes in the cost of living, leading to potentially wrong estimates of the rate of growth of real income. In this paper CPI bias for Indonesia is calculated by estimating food Engel curves for households with the same level of CPI-deflated incomes at four different points in time between 1993 and 2008. The results suggest CPI bias was initially negative during the Asian Crisis but has been positive since 2000. Over the entire period, CPI bias has averaged four percent annually, equivalent to almost one-third of the measured inflation rate.

Suggested Citation

  • Susan Olivia & John Gibson, 2012. "Using Engel Curves to Measure CPI Bias for Indonesia," Working Papers in Economics 12/06, University of Waikato.
  • Handle: RePEc:wai:econwp:12/06
    as

    Download full text from publisher

    File URL: https://repec.its.waikato.ac.nz/wai/econwp/1206.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    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. Frankenberg, E. & Thomas, D. & Beegle, K., 1999. "The Real Costs of Indonesia's Economic Crisis: Preliminary Findings from the Indonesia Family Life Surveys," Papers 99-04, RAND - Labor and Population Program.
    3. Timothy K.M. 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/Revue canadienne d'économique, John Wiley & Sons, vol. 38(2), pages 482-499, May.
    4. Filho, Irineu de Carvalho & Chamon, Marcos, 2012. "The myth of post-reform income stagnation: Evidence from Brazil and Mexico," Journal of Development Economics, Elsevier, vol. 97(2), pages 368-386.
    5. Gibson, John & Stillman, Steven & Le, Trinh, 2008. "CPI bias and real living standards in Russia during the transition," Journal of Development Economics, Elsevier, vol. 87(1), pages 140-160, August.
    6. John Gibson & Grant Scobie, 2010. "Using Engel curves to estimate CPI bias in a small, open, inflation-targeting economy," Applied Financial Economics, Taylor & Francis Journals, vol. 20(17), pages 1327-1335.
    7. Muhammad, Andrew & Meade, Birgit Gisela Saager & Regmi, Anita & Seale, James L., 2011. "International Evidence on Food Consumption Patterns: An Update Using 2005 International Comparison Program Data," Technical Bulletins 120252, United States Department of Agriculture, Economic Research Service.
    8. Asep Suryahadi & Sudarno Sumarto & Lant Pritchett, 2003. "Evolution of Poverty During the Crisis in Indonesia," Asian Economic Journal, East Asian Economic Association, vol. 17(3), pages 221-241, September.
    9. Chul Chung & John Gibson & Bonggeun Kim, 2010. "CPI Mismeasurements and Their Impacts on Economic Management in Korea," Asian Economic Papers, MIT Press, vol. 9(1), pages 1-15, Winter/Sp.
    10. Naeem Ahmed & Matthew Brzozowski & Thomas Crossley, 2006. "Measurement errors in recall food consumption data," IFS Working Papers W06/21, Institute for Fiscal Studies.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Is the Indonesian CPI an accurate measure of the cost of living?
      by Susan Olivia in East Asia Forum on 2012-08-11 17:00:07

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ingvild Almås & Anders Kjelsrud & Rohini Somanathan, 2019. "A Behavior‐Based Approach to the Estimation of Poverty in India," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(1), pages 182-224, January.
    2. Ingvild Almås & Tim Beatty & Thomas Crossley, 2018. "Lost in translation: What do Engel curves tell us about the cost of living?," IFS Working Papers W18/04, Institute for Fiscal Studies.
    3. Andrew Dabalen & Isis Gaddis & Nga Thi Viet Nguyen, 2020. "CPI Bias and its Implications for Poverty Reduction in Africa," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 18(1), pages 13-44, March.
    4. Gaddis,Isis, 2016. "Prices for poverty analysis in Africa," Policy Research Working Paper Series 7652, The World Bank.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Almås, Ingvild & Johnsen, Åshild Auglænd, 2012. "The cost of living in China: Implications for inequality and poverty," Discussion Paper Series in Economics 21/2012, Norwegian School of Economics, Department of Economics.
    2. Gaddis,Isis, 2016. "Prices for poverty analysis in Africa," Policy Research Working Paper Series 7652, The World Bank.
    3. Emi Nakamura & Jón Steinsson & Miao Liu, 2016. "Are Chinese Growth and Inflation Too Smooth? Evidence from Engel Curves," American Economic Journal: Macroeconomics, American Economic Association, vol. 8(3), pages 113-144, July.
    4. Ingvild Almas & Ashild Johnsen, 2018. "The cost of a growth miracle - reassessing price and poverty trends in China," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 30, pages 239-264, October.
    5. Chamon, Marcos & de Carvalho Filho, Irineu, 2014. "Consumption based estimates of urban Chinese growth," China Economic Review, Elsevier, vol. 29(C), pages 126-137.
    6. Andrew Dabalen & Isis Gaddis & Nga Thi Viet Nguyen, 2020. "CPI Bias and its Implications for Poverty Reduction in Africa," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 18(1), pages 13-44, March.
    7. Filho, Irineu de Carvalho & Chamon, Marcos, 2012. "The myth of post-reform income stagnation: Evidence from Brazil and Mexico," Journal of Development Economics, Elsevier, vol. 97(2), pages 368-386.
    8. Ingvild Almås & Timothy K.M. Beatty & Thomas F. Crossley, 2018. "Lost in Translation: What do Engel Curves Tell us about the Cost of Living?," CESifo Working Paper Series 6886, CESifo.
    9. Ingvild Almås & Anders Kjelsrud & Rohini Somanathan, 2019. "A Behavior‐Based Approach to the Estimation of Poverty in India," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(1), pages 182-224, January.
    10. James Gorry & Dean Scrimgeour, 2018. "Using Engel Curves To Estimate Consumer Price Index Bias For The Elderly," Contemporary Economic Policy, Western Economic Association International, vol. 36(3), pages 539-553, July.
    11. Erling Røed Larsen, 2014. "Is the Engel curve approach viable in the estimation of alternative PPPs?," Empirical Economics, Springer, vol. 47(3), pages 881-904, November.
    12. 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.
    13. Majumder,Amita & Ray,Ranjan & Santra,Sattwik, 2015. "Preferences, purchasing power parity, and inequality : analytical framework, propositions, and empirical evidence," Policy Research Working Paper Series 7395, The World Bank.
    14. Trevon D. Logan, 2008. "Are Engel Curve Estimates of CPI Bias Biased?," NBER Working Papers 13870, National Bureau of Economic Research, Inc.
    15. Steven A. Block & Lynnda Keiss & Patrick Webb & S. Kosen & Regina Moench-Pfanner & Martin W. Bloem & C. Peter Timmer, 2002. "Did Indonesia's Cries of 1997/98 Affect Child Nutrition? A Cohort Decomposition Analysis of National Nutrition Surveillance Data," Working Papers in Food Policy and Nutrition 05, Friedman School of Nutrition Science and Policy.
    16. Martina Bazzoli & Paolo Di Caro & Francesco Figari & Carlo V. Fiorio & Marco Manzo, 2020. "Size, heterogeneity and distributional effects of self-employment income tax evasion in Italy," FBK-IRVAPP Working Papers 2020-02, Research Institute for the Evaluation of Public Policies (IRVAPP), Bruno Kessler Foundation.
    17. Jed Friedman, 2003. "How Responsive is Poverty to Growth? A Regional Analysis of Poverty, Inequality, and Growth in Indonesia, 1984-99," WIDER Working Paper Series DP2003-57, World Institute for Development Economic Research (UNU-WIDER).
    18. John Gibson & Bonggeun Kim & Chul Chung, 2008. "Using Panel Data to Exactly Estimate Under-Reporting by the Self-Employed," Working Papers in Economics 08/15, University of Waikato.
    19. 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.
    20. Bonggeun Kim & John Gibson & Chul Chung, 2009. "Using Panel Data to Exactly Estimate Income Under-Reporting by the Self Employed," Labor Economics Working Papers 22996, East Asian Bureau of Economic Research.

    More about this item

    Keywords

    CPI bias; Engel curve; inflation; measurement error;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wai:econwp:12/06. 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: . General contact details of provider: https://edirc.repec.org/data/dewaknz.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Geua Boe-Gibson (email available below). General contact details of provider: https://edirc.repec.org/data/dewaknz.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.