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Does the CPI Mirror the Cost of Living? Engel's Law Suggests Not in Norway
Author(s) -
Larsen Erling Røed
Publication year - 2007
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/j.1467-9442.2007.00487.x
Subject(s) - norwegian , cost of living , economics , demographic economics , standard of living , econometrics , macroeconomics , philosophy , linguistics , market economy
There is considerable interest in identifying the magnitude of the difference between increases in the CPI and the cost of living. In this paper, the technique proposed by Hamilton (2001) to measure this discrepancy is used and extended for Norway in the 1990s. While Hamilton finds that the CPI in the United States overstates the cost of living for the period 1974–1991, application of his technique to Norwegian data for 1990–1999 indicates that the CPI understates the cost of living. The Norwegian CPI rose by 22 percent, but a typical household behaved as if the cost of living had increased by 35 percent. For some household types, the increase was substantially larger.