Using Engel Curves to Estimate Bias in the Canadian CPI as a Cost of Living Index

18 Pages Posted: 1 Apr 2005

See all articles by Timothy K. M. Beatty

Timothy K. M. Beatty

University of British Columbia (UBC) - Faculty of Agricultural Sciences

Erling Roed Larsen

Statistics Norway - Research Department

Abstract

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

Suggested Citation

Beatty, Timothy K. M. and Larsen, Erling Roed, Using Engel Curves to Estimate Bias in the Canadian CPI as a Cost of Living Index. Available at SSRN: https://ssrn.com/abstract=696955

Timothy K. M. Beatty (Contact Author)

University of British Columbia (UBC) - Faculty of Agricultural Sciences ( email )

Vancouver, BC V6T 1Z4
Canada
604-822-1203 (Phone)
604-822-2184 (Fax)

Erling Roed Larsen

Statistics Norway - Research Department ( email )

Kongens Gt. 6
PO Box 8131 Dep
N-0033 Oslo
Norway
21094961 (Phone)
21090040 (Fax)

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