Using Engel Curves to Measure CPI Bias for Indonesia

Susan Olivia and John Gibson

Working Papers in Economics from University of Waikato

Abstract: To measure real income growth over time a price index is needed to adjust for changes in the cost of living. The Consumer Price Index (CPI) is often used for this task but studies from several countries show the CPI is a biased measure of changes in the cost of living, leading to potentially wrong estimates of the rate of growth of real income. In this paper CPI bias for Indonesia is calculated by estimating food Engel curves for households with the same level of CPI-deflated incomes at four different points in time between 1993 and 2008. The results suggest CPI bias was initially negative during the Asian Crisis but has been positive since 2000. Over the entire period, CPI bias has averaged four percent annually, equivalent to almost one-third of the measured inflation rate.

Keywords: CPI bias; Engel curve; inflation; measurement error (search for similar items in EconPapers)
JEL-codes: C43 E31 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2012-06-21
New Economics Papers: this item is included in nep-agr and nep-sea
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Using Engel curves to measure CPI bias for Indonesia (2013)
Working Paper: Using Engel Curves to Measure CPI Bias for Indonesia (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:wai:econwp:12/06

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