Measuring the Cost of Living in Mexico and the US

Abstract

Cross-country price indexes are crucial to compare living standards between countries and to measure global inequality. An accurate measurement of these price indexes has proven to be a difficult task because of the lack of accurate data on the consumption patterns of different countries. In this paper, we construct a unique data on prices and quantities for consumer packaged goods matched at the barcode-level across two countries, United States and Mexico. We estimate that the Mexican real consumption relative to the United States is larger than previously estimated. We identify heterogeneity in shopping behavior, quality of products, and variety availability as important sources of bias in international price comparisons.

Keywords: Price Index, Purchasing Power Parity, International Price Comparison

JEL Classification: E01, E31, O47