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Substitution Bias and Cost of Living Variability for U.S. Demographic Groups:

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  • Steven A. Cobb

Abstract

. Intertemporal cost of living variability is analyzed for households with differing income levels and family characteristics. These indexes are based upon the parameter estimates of a comprehensive system of expenditure equations, the quadratic expenditure system. Despite considerable differences in the group‐specific share parameters as well as nonlinearities in the Engle curves for each group, little variation occurs in these indexes for several U.S. price series over the 1967–1984 time period. As a result, we find little evidence that group‐specific fixed weight indexes are better cost of living approximations than a general Consumer Price Index even though all substitution bias estimates, by income and household type, are quite small.

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  • Steven A. Cobb, 1991. "Substitution Bias and Cost of Living Variability for U.S. Demographic Groups:," American Journal of Economics and Sociology, Wiley Blackwell, vol. 50(1), pages 85-97, January.
    • Handle: RePEc:bla:ajecsc:v:50:y:1991:i:1:p:85-97
    DOI: 10.1111/j.1536-7150.1991.tb02493.x
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    1. Barnes, Roberta & Gillingham, Robert, 1984. "Demographic Effects in Demand Analysis: Estimation of the Quadratic Expenditure System Using Microdata," The Review of Economics and Statistics, MIT Press, vol. 66(4), pages 591-601, November.
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    5. Cobb, Steven, 1984. "The impact of site characteristics on housing cost estimates," Journal of Urban Economics, Elsevier, vol. 15(1), pages 26-45, January.
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    7. Howe, Howard & Pollak, Robert A & Wales, Terence J, 1979. "Theory and Time Series Estimation of the Quadratic Expenditure System," Econometrica, Econometric Society, vol. 47(5), pages 1231-1247, September.
    8. Michael, Robert T, 1979. "Variation across Households in the Rate of Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(1), pages 32-46, February.
    9. Braithwait, Steven D, 1980. "The Substitution Bias of the Laspeyres Price Index: An Analysis Using Estimated Cost-of-Living Indexes," American Economic Review, American Economic Association, vol. 70(1), pages 64-77, March.
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