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Estimating Upward Bias in the Japanese CPI Using Engel's Law

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  • Kazuhito Higa

Abstract

The Japanese Consumer Price Index (CPI) is considered to be upwardly biased. This paper estimates the Engel curve based on National Survey of Family Income and Expenditure data to measure the bias. The estimated annual bias for the period 1989 to 2004 is 0.5 percentage points. Correcting the bias leads to a lower inflation rate of 0.14 percent per year, against the official inflation rate of 0.65 percent during the period. A demographic analysis shows that a household with a pre-school child faces a smaller bias suggesting that the opportunity cost of shopping determines the size of the bias.

Suggested Citation

  • Kazuhito Higa, 2013. "Estimating Upward Bias in the Japanese CPI Using Engel's Law," Global COE Hi-Stat Discussion Paper Series gd12-295, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hst:ghsdps:gd12-295
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    File URL: http://gcoe.ier.hit-u.ac.jp/research/discussion/2008/pdf/gd12-295.pdf
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    References listed on IDEAS

    as
    1. Garry F. Barrett & Matthew Brzozowski, 2010. "Using Engel Curves to Estimate the Bias in the Australian CPI," The Economic Record, The Economic Society of Australia, vol. 86(272), pages 1-14, March.
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    3. Takashi Unayama, 2008. "Measuring the substitution bias in Japan: the demand system approach and a superlative index," Applied Economics, Taylor & Francis Journals, vol. 40(14), pages 1795-1806.
    4. Mark Aguiar & Erik Hurst, 2007. "Life-Cycle Prices and Production," American Economic Review, American Economic Association, vol. 97(5), pages 1533-1559, December.
    5. Dora L. Costa, 2001. "Estimating Real Income in the United States from 1888 to 1994: Correcting CPI Bias Using Engel Curves," Journal of Political Economy, University of Chicago Press, vol. 109(6), pages 1288-1310, December.
    6. Shiratsuka, Shigenori, 1999. "Measurement Errors in the Japanese Consumer Price Index," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 17(3), pages 69-102, December.
    7. Chul Chung & John Gibson & Bonggeun Kim, 2010. "CPI Mismeasurements and Their Impacts on Economic Management in Korea," Asian Economic Papers, MIT Press, vol. 9(1), pages 1-15, Winter/Sp.
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    1. My Recent Reading
      by Dave Giles in Econometrics Beat: Dave Giles' Blog on 2013-05-07 04:10:00

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    More about this item

    Keywords

    Consumer Price Index Bias; Engel's Law;

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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