NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Are Engel Curve Estimates of CPI Bias Biased?

Trevon D. Logan

NBER Working Paper No. 13870
Issued in March 2008
NBER Program(s):   DAE   EFG

A recent literature has advanced the use of Engel curves to estimate overall CPI bias. In this paper, I show that the methodology is sensitive to the modeling of household demography. Existing estimates of CPI bias do not account for the changing effect of household size on budget shares, and this can lead to omitted variable bias. Since the effect of household size on demand changes over time the drift in Engel curves attributed to CPI bias is partially explained by this effect. My estimates of the annual rate of CPI bias from 1888 to 1935 are changed by at least 25%, and usually more than 50%, once the changing effect of household size is accounted for.

download in pdf format
   (195 K)

email paper

This paper is available as PDF (195 K) or via email.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w13870

Users who downloaded this paper also downloaded these:
McCallum w14534 Inflation Determination with Taylor Rules: Is New Keynesian Analysis Critically Flawed?
Aizenman, Hutchison, and Noy w14561 Inflation Targeting and Real Exchange Rates in Emerging Markets
Arunachalam and Logan w13905 Is There Dowry Inflation in South Asia?
Bordo and Eichengreen w14532 Bretton Woods and the Great Inflation
Burstein, Eichenbaum, and Rebelo w8748 Why Are Rates of Inflation So Low After Large Devaluations?
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us