Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/176905
Authors: 
Almås, Ingvild
Beatty, Timothy K.M.
Crossley, Thomas F.
Year of Publication: 
2018
Series/Report no.: 
CESifo Working Paper No. 6886
Abstract: 
The Hamilton method for estimating CPI bias is simple, intuitive, and has been widely adopted. We show that the method confiates CPI bias with variation in cost-of-living across income levels. Assuming a single price index across the income distribution is inconsistent with the downward sloping Engel curves that are necessary to implement the method. We develop and implement the Translated Engel curve (TEC) method that disentangles genuine CPI bias from differences caused by comparing changes in the cost of living across different income levels - non-homotheticity. The TEC method gives substantially different estimates of CPI bias prior to major reforms to the CPI in 1999 (post-Boskin), but both methods suggest very little CPI bias thereafter.
Subjects: 
Engel curves
current price index
cost of living
JEL: 
C43
C82
D12
D31
E31
Document Type: 
Working Paper

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