Revisiting taste change in cost-of-living measurement

Robert Martin

No 515, Economic Working Papers from Bureau of Labor Statistics

Abstract: This paper derives conditional cost-of-living indexes (COLI) for the Constant Elasticity of Substitution model in the presence of taste change. Recent proposals to incorporate changing tastes reflect a different conceptual target (an unconditional COLI) from a consumer price index (a conditional COLI), and a strong implicit assumption (cardinal utility). Using Nielsen retail scanner data for food and beverage products, I find that tastes can dominate prices in unconditional COLI estimates, while they have smaller impacts on conditional COLI. Using CPI data, I find that category-level tastes have a relatively minor average effect on an all-items price index.

Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:bls:wpaper:515

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