The Relative Importance of Taste Shocks and Price Movements in the Variation of Cost-of-Living: Evidence From Scanner Data

Tests for Price Indices in a Dynamic Item Universe

Journal of Official Statistics ◽

10.2478/jos-2019-0028 ◽

2019 ◽

Vol 35 (3) ◽

pp. 683-697

Author(s):

Li-Chun Zhang ◽

Ingvild Johansen ◽

Ragnhild Nygaard

Keyword(s):

Price Index ◽

Consumer Price Index ◽

Scanner Data ◽

Price Indices ◽

Cost Of Living ◽

Quality Change ◽

Large Index ◽

New Goods ◽

Cost Of Living Index ◽

Index Family

Abstract There is generally a need to deal with quality change and new goods in the consumer price index due to the underlying dynamic item universe. Traditionally axiomatic tests are defined for a fixed universe. We propose five tests explicitly formulated for a dynamic item universe, and motivate them both from the perspectives of a cost-of-goods index and a cost-of-living index. None of the indices that are currently available for making use of scanner data satisfies all the tests at the same time. The set of tests provides a rigorous diagnostic for whether an index is completely appropriate in a dynamic item universe, as well as pointing towards the directions of possible remedies. We thus outline a large index family that potentially can satisfy all the tests.

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Sources of Bias and Solutions to Bias in the Consumer Price Index

The Journal of Economic Perspectives ◽

10.1257/089533003321164930 ◽

2003 ◽

Vol 17 (1) ◽

pp. 23-44 ◽

Cited By ~ 91

Author(s):

Jerry Hausman

Keyword(s):

Price Index ◽

Consumer Price Index ◽

Second Order ◽

Order Effects ◽

Scanner Data ◽

Cost Of Living ◽

First Order ◽

Consumer Prices ◽

Substitution Bias ◽

Cost Of Living Index

Four sources of bias in the Consumer Prices Index (CPI) have been identified. The most discussed is substitution bias, which creates a second order bias in the CPI. Three other changes besides prices changes create first order effects on a correctly measured cost of living index (COLI). I explain in this paper that a “pure price” based approach of surveying prices to estimate a COLI cannot succeed in solving the 3 problems of first order bias. I discuss economic and econometric approaches to measuring the first order bias effects as well as the availability of scanner data that would permit implementation of the techniques.

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Product Turnover and the Cost-of-Living Index: Quality versus Fashion Effects

American Economic Journal Macroeconomics ◽

10.1257/mac.20160403 ◽

2019 ◽

Vol 11 (2) ◽

pp. 310-347

Author(s):

Kozo Ueda ◽

Kota Watanabe ◽

Tsutomu Watanabe

Keyword(s):

Price Index ◽

New Product ◽

Sample Period ◽

Scanner Data ◽

Matched Sample ◽

Cost Of Living ◽

Entire Sample ◽

The Cost ◽

Cost Of Living Index ◽

Over Time

This paper evaluates the effects of product turnover on a welfare-based cost-of-living index by incorporating the quality effect and the fashion effect. Employing scanner data for Japan for the years 1988–2013, we find that (i) the price and quantity of a new product tend to be higher than those of its predecessor at its exit; (ii) a considerable fashion effect exists for the entire sample period, while the quality effect is declining over time; and (iii) the discrepancy between the cost-of-living index estimated based on our methodology and the price index constructed only from a matched sample is not large. (JEL C43, E31, L11, L15, L81)

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