Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/192350 
Year of Publication: 
2004
Series/Report no.: 
Discussion Papers No. 368
Publisher: 
Statistics Norway, Research Department, Oslo
Abstract: 
There is considerable interest in identifying the magnitude of the difference between increases in CPI and costs-of-living, and this article uses the technique proposed by Hamilton (2001) to measure this discrepancy for Norway for the 90s. The method is extended along several dimensions by introducing a framework in which measurement errors are modelled. A non-parametric approach is then employed to segment households into demographic types while allowing for flexibility in costs-of-living increases for different standards. Hamilton finds that American CPI overstates costs-of-living in the U.S. for the period 1974-1991, Norwegian results for 1990-1999 indicate that CPI sometimes may understate costs-of-living, perhaps because of a credit-financed boom in house prices. The Norwegian CPI rose 22 percent in the period, but the general consumer behaved as if costs-of-living increased more than 35 percent. For some segments of society, for example single-person households, the increase was substantially larger, suggesting potentially important distributional effects.
Subjects: 
Almost-Ideal-Demand-System
consumer price index bias
cost-of-living
demand for food
Engel's Law
household behavior
house prices
inflation
real income
standards of living
JEL: 
C13
D12
E31
Document Type: 
Working Paper

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