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Using Engel curves to estimate CPI bias in a small, open, inflation-targeting economy

Abstract
The Consumer Price Index (CPI) bias for New Zealand is calculated by estimating the food Engel curves for demographically similar households with the same level of CPI-deflated incomes at different points in time. For the 17 years from 1984 to 2001 the bias in the New Zealand CPI as a cost-of-living index averaged over 1% annually. This bias is similar to estimates for the US when the same method is used over a similar era. Thus, the claim of some statistical agencies that bias in their own CPI is less than the widely discussed bias in the US may not be supported. The estimated CPI bias justifies the initial choice of inflation target for the Reserve Bank of New Zealand but not the recent raising of the target.
Type
Journal Article
Type of thesis
Series
Citation
Gibson, J. & Scobie, G. (2010). Using Engel curves to estimate CPI bias in a small, open, inflation-targeting economy. Applied Financial Economics, 20(17), 1327-1335.
Date
2010
Publisher
Routledge
Degree
Supervisors
Rights
Publisher version