Constructing the true cost of living index from the Engel curves of the PIGLOG model
Date
1989Author
Fry, Vanessa C.Pashardes, Panos
Source
Journal of Applied EconometricsVolume
4Pages
41-56Google Scholar check
Metadata
Show full item recordAbstract
This paper investigates the properties of the Tornqvist index and shows how this can be used to construct a true cost of living index from a simple system of Engel curves. This allows the substitution bias inherent in a fixed weight index to be estimated using the maximum degree of commodity disaggregation available in the data. Furthermore the proposed index can be decomposed to show the impact of inflation on households with different expenditure levels and household chararacteristics. An empirical application of the method is given, using data on UK food expenditures. Copyright © 1989 John Wiley & Sons, Ltd.