Measurement Error in the Consumer Price Index: Where Do We Stand?

By David E. Lebow, Jeremy B. Rudd. 2003

197 citations recorded by the source corpus.

We survey the evidence bearing on measurement error in the CPI and provide our best estimate of the magnitude of CPI bias. We also identify a "weighting" bias in the CPI that has not been previously discussed in the literature. In total, we estimate that the CPI overstates the change in the cost of living by about 0.6 percentage point per year, with a confidence interval that ranges from 0.1 to 1.2 percentage points. Roughly half of this bias is accounted for by the CPI's inability to fully capture the welfare improvement from quality change and the introduction of new items. Our bias estimate is smaller than that found in several earlier studies, in part because the BLS has recently made a variety of improvements to its procedures; our study highlights several potential areas for further improvement.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/54dd359933e8d04f85dd62b3f9fe67c401f8ccfc

Citations in the corpus

• The Rent-Price Ratio for the Aggregate Stock of Owner-Occupied Housing (2008, unknown): “Shiller, R., Irrational Exuberance, 2nd edition, Princeton University Press, Princeton, NJ, 2005.”