Decomposing the Price Effect on the Cost of Living for Australian Households

Paul Blacklow

No 10452, Working Papers from University of Tasmania, Tasmanian School of Business and Economics

Abstract: In this paper the author demonstrates that the change in cost of living index (CLI) can be decomposed into the contribution that the price change in each good makes to the CLI. A CLI is constructed based upon a demographically scaled version of the Quadratic Almost Ideal demand system. The construction of a CLI in demographic rank-3 framework allows the index to vary across demographics and expenditure level. The parameters of the CLI are recovered by estimating the demand system based upon a pooled cross-section of the Household Expenditure Surveys (HES) and Consumer Price Index (CPI) series from the Australian Bureau of Statistics (ABS) over 1984 to 2003-04. The contribution of price changes in thirteen broad commodity aggregates from 1984 to 2003-04 on the CLI are examined. The variation of the impact is examined across levels of expenditure and the number of children in the household.

Keywords: Cost of Living Index; Price Decomposition; Demographic Demand System (search for similar items in EconPapers)
JEL-codes: D1 D6 I3 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2009-03-01, Revised 2009-05-01
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Published by the University of Tasmania. Discussion paper 2010-08

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