Cost of Living Inequality during the Great Recession

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

63 Pages Posted: 21 Feb 2015 Last revised: 20 Sep 2017

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 indices for the period from 2004 to 2010. We find substantial differences across income groups that arise during the Great Recession. The annual inflation in the cost of living of the highest quartile is on average 0.59 percentage points lower than that of the lowest quartile of the income distribution. We find that product quality substitution, a margin mostly available to richer households, is the main mechanism explaining the differences. Our evidence shows that not accounting for these differences could lead to significant biases in the calculation of inequality and poverty measures.

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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