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Using Engel curves to estimate bias in the Canadian CPI as a cost of living index
Author(s) -
Beatty Timothy K.M.,
Larsen Erling Røed
Publication year - 2005
Publication title -
canadian journal of economics/revue canadienne d'économique
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.773
H-Index - 69
eISSN - 1540-5982
pISSN - 0008-4085
DOI - 10.1111/j.0008-4085.2005.00289.x
Subject(s) - engel curve , cost of living , economics , index (typography) , econometrics , price index , welfare , consumer price index (south africa) , macroeconomics , computer science , monetary policy , market economy , world wide web
. Semiparametric Engel curves are used to infer bias in the Canadian CPI as a Cost of Living Index. The budget share of food has long been used as an indicator of welfare. We compare households with the same levels of CPI deflated total expenditure over the period 1978–2000. Differences in the expenditure share of food are attributed to the CPI failing to capture changes in costs of living. We employ a novel econometric approach using a single index penalized linear spline model. Over the period, we find that the CPI overstated changes in the cost of living between 1.33 and 1.86% for the four household types considered. JEL classification: D1, C1