IDEAS home Printed from https://ideas.repec.org/a/ecm/emetrp/v56y1988i4p909-30.html
   My bibliography  Save this article

An Analysis of Substitution Bias in Measuring Inflation, 1959-85

Author

Listed:
  • Manser, Marilyn E
  • McDonald, Richard J

Abstract

The authors analyze the substitution bias in Laspeyres-type price indexes, using 101 c ommodities. They construct the tightest theoretical bounds on the cos t-of-living index using nonparametric methods and also construct supe rlative price indexes. Using nonparametric methods, the authors find homothetic preferences are consistent with the data. Sensitivity test s indicate that this result is not vacuous. Under this hypothesis, th e bias is between 0.22 and 0.14 percent per year. Superlative indexes imply a bias of about 0.18 percent. This estimate is somewhat larger than found in earlier studies. Commodity aggregation is found to be a major contributor to measured substitution bias. Copyright 1988 by The Econometric Society.

Suggested Citation

  • Manser, Marilyn E & McDonald, Richard J, 1988. "An Analysis of Substitution Bias in Measuring Inflation, 1959-85," Econometrica, Econometric Society, vol. 56(4), pages 909-930, July.
  • Handle: RePEc:ecm:emetrp:v:56:y:1988:i:4:p:909-30
    as

    Download full text from publisher

    File URL: http://links.jstor.org/sici?sici=0012-9682%28198807%2956%3A4%3C909%3AAAOSBI%3E2.0.CO%3B2-X&origin=repec
    File Function: full text
    Download Restriction: Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Adena, Maja & Huck, Steffen & Rasul, Imran, 2017. "Testing consumer theory: evidence from a natural field experiment," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 3(2), pages 89-108.
    2. Sologon, Denisa Maria & O'Donoghue, Cathal & Linden, Jules & Kyzyma, Iryna & Loughrey, Jason, 2022. "Welfare and Distributional Impact of Soaring Prices in Europe," IZA Discussion Papers 15738, Institute of Labor Economics (IZA).
    3. Kovács, Ilona, 2003. "A fogyasztói árindex torzító tényezői [Distorting factors in the consumer price index]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 702-719.
    4. Kesavan, Thulasiram, 1988. "Monte Carlo experiments of market demand theory," ISU General Staff Papers 198801010800009854, Iowa State University, Department of Economics.
    5. David Edgerton & Donald Dutkowsky & Thomas Elger & Barry Jones, 2005. "Toward a unified approach to testing for weak separability," Economics Bulletin, AccessEcon, vol. 3(20), pages 1-7.
    6. Susan K. Snyder, 2000. "Nonparametric Testable Restrictions of Household Behavior," Southern Economic Journal, John Wiley & Sons, vol. 67(1), pages 171-185, July.
    7. Jan Heufer & Per Hjertstrand, 2015. "Homothetic Efficiency and Test Power: A Non-Parametric Approach," Tinbergen Institute Discussion Papers 15-064/I, Tinbergen Institute.
    8. Carvajal, Andres & Ray, Indrajit & Snyder, Susan, 2004. "Equilibrium behavior in markets and games: testable restrictions and identification," Journal of Mathematical Economics, Elsevier, vol. 40(1-2), pages 1-40, February.
    9. Marshall Reinsdorf & Jack E. Triplett, 2009. "A Review of Reviews: Ninety Years of Professional Thinking About the Consumer Price Index," NBER Chapters, in: Price Index Concepts and Measurement, pages 17-83, National Bureau of Economic Research, Inc.
    10. Sutirtha Bandyopadhyay & Bharat Ramaswami, 2022. "The representative agent bias in cost of living indices," Bulletin of Economic Research, Wiley Blackwell, vol. 74(1), pages 155-178, January.
    11. Zvi Griliches, 1992. "Introduction to "Output Measurement in the Service Sectors"," NBER Chapters, in: Output Measurement in the Service Sectors, pages 1-22, National Bureau of Economic Research, Inc.
    12. Hill, Robert J., 2006. "Superlative index numbers: not all of them are super," Journal of Econometrics, Elsevier, vol. 130(1), pages 25-43, January.
    13. Ou Yang & Peter Sivey & Andrea M. de Silva & Anthony Scott, 2016. "Preschool Children’s Demand for Sugar Sweetened Beverages: Evidence from Stated-Preference Panel Data," Melbourne Institute Working Paper Series wp2016n25, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    14. R. A. Somerville, 2004. "Changes in Relative Consumer Prices and the Substitution Bias of the Laspeyres Price Index - Ireland, 1985-2001," The Economic and Social Review, Economic and Social Studies, vol. 35(1), pages 55-82.
    15. Marshall Reinsdorf, 1993. "The Effect of Outlet Price Differentials on the US Consumer Price Index," NBER Chapters, in: Price Measurements and Their Uses, pages 227-258, National Bureau of Economic Research, Inc.
    16. Wynne, Mark A & Sigalla, Fiona D, 1996. "A Survey of Measurement Biases in Price Indexes," Journal of Economic Surveys, Wiley Blackwell, vol. 10(1), pages 55-89, March.
    17. Robert J. Shiller, 1997. "Public Resistance to Indexation: A Puzzle," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 159-228.
    18. Shireen AlAzzawi, 2017. "Did the Cost of Living Rise Faster for the Rural Poor?," Working Papers 1091, Economic Research Forum, revised 05 Apr 2017.
    19. Patrick Sillard & Lionel Wilner, 2015. "Constant utility index and inter-month substitution," Economics Bulletin, AccessEcon, vol. 35(3), pages 1772-1781.
    20. Jim Engle-Warnick & Natalia Mishagina, 2014. "Insensitivity to Prices in a Dictator Game," CIRANO Working Papers 2014s-19, CIRANO.
    21. Ambrose, Brent W. & Coulson, N. Edward & Yoshida, Jiro, 2017. "Inflation Rates Are Very Different When Housing Rents Are Accurately Measured," HIT-REFINED Working Paper Series 71, Institute of Economic Research, Hitotsubashi University.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecm:emetrp:v:56:y:1988:i:4:p:909-30. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/essssea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.