Cost of Living Inequality during the Great Recession

Kilts Center for Marketing at Chicago Booth – Nielsen Dataset Paper Series 1-032

53 Pages Posted: 21 Feb 2015 Last revised: 4 Sep 2019

See all articles by David Argente

David Argente

Federal Reserve Banks - Federal Reserve Bank of Minneapolis

Munseob Lee

University of California, San Diego (UCSD)

Date Written: March 1, 2017

Abstract

We construct income-specific price indexes for the period from 2004 to 2016. We find substantial differences across income groups that arise during the Great Recession. The difference in annual inflation between the lowest quartile of the income distribution and the highest quartile was 0.22 percentage points for 2004-2007, 0.85 percentage points for 2008-2013, and 0.02 percentage points for 2014-2016. We find that product quality substitution and changes in the shopping behavior, margins mostly available to richer households, explain around 40 percent of the gap. Our evidence shows that not accounting for these differences in price indexes could lead to significant biases in the calculation of consumption and income inequality.

Keywords: Cost of living, Inequality, Price Index, Shopping Behavior

JEL Classification: D12, E31, E32, I30

Suggested Citation

Argente, David and Lee, Munseob, Cost of Living Inequality during the Great Recession (March 1, 2017). Kilts Center for Marketing at Chicago Booth – Nielsen Dataset Paper Series 1-032. Available at SSRN: https://ssrn.com/abstract=2567357 or http://dx.doi.org/10.2139/ssrn.2567357

David Argente (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Minneapolis ( email )

90 Hennepin Avenue
Minneapolis, MN 55480
United States

Munseob Lee

University of California, San Diego (UCSD) ( email )

9500 Gilman Drive
#0519
La Jolla, CA 92093-0519
United States

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