Lost in translation: What do Engel curves tell us about the cost of living?

Ingvild Almås (), Tim Beatty () and Thomas Crossley ()
Additional contact information
Ingvild Almås: Institute for Fiscal Studies and Stockholm University
Tim Beatty: Institute for Fiscal Studies and University of Minnesota

No W18/04, IFS Working Papers from Institute for Fiscal Studies

Abstract: The Hamilton method for estimating CPI bias is simple, intuitive, and has been widely adopted. We show that the method conflates CPI bias with variation in cost-of-living across income levels. Assuming a single price index across the income distribution is inconsistent with the downward sloping Engel curves that are necessary to implement the method. We develop and implement the Translated Engel curve (TEC) method that disentangles genuine CPI bias from differences caused by comparing changes in the cost of living across different income levels - non-homotheticity. The TEC method gives substantially different estimates of CPI bias prior to major reforms to the CPI in 1999 (post-Boskin), but both methods suggest very little CPI bias thereafter.

Date: 2018-02-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
https://www.ifs.org.uk/uploads/WP201804.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (https://www.ifs.org.uk/uploads/WP201804.pdf [302 Found]--> https://ifs.org.uk/uploads/WP201804.pdf)

Related works:
Working Paper: Lost in translation: What do Engel curves tell us about the cost of living? (2019)
Working Paper: Lost in Translation: What do Engel Curves Tell us about the Cost of Living? (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ifs:ifsewp:18/04

Ordering information: This working paper can be ordered from
The Institute for Fiscal Studies 7 Ridgmount Street LONDON WC1E 7AE

Access Statistics for this paper

More papers in IFS Working Papers from Institute for Fiscal Studies The Institute for Fiscal Studies 7 Ridgmount Street LONDON WC1E 7AE. Contact information at EDIRC.
Bibliographic data for series maintained by Emma Hyman ().