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

Manser, Marilyn E.; McDonald, R. J.

doi:10.2307/1912704

Cited by 101 publications

(59 citation statements)

References 17 publications

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“…Hence, in contrast to our research design, tests of revealed preference based on non-experimental data are likely to have low power (Varian 1982;Bronars 1995). Such approaches have provided mixed results with some studies rejecting behavior consistent with GARP (Mossin 1972;Hardle et al 1991) and others finding more rationalizable patterns of consumption (Manser andMcdonald 1988, Famulari 1995). Methodological advances using non-parametric techniques suggest that consumer behavior does not reject GARP in the long run for most income groups (Blundell et al 2003).…”

Section: Introductionmentioning

confidence: 90%

Testing Consumer Theory: Evidence from a Natural Field Experiment

2017

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract We present evidence from a natural field experiment designed to shed light on whether individual behavior is consistent with a neoclassical model of utility maximization subject to budget constraints. We do this through the lens of a field experiment on charitable giving. We find that the behavior of at least 80% of individuals, on both the extensive and intensive margins, can be rationalized within a standard neoclassical choice model in which individuals have preferences, defined over own consumption and their contribution towards the charitable good, satisfying the axioms of revealed preference. Terms of use: Documents in EconStor may

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Section: Introductionmentioning

confidence: 90%

Testing Consumer Theory: Evidence from a Natural Field Experiment

2017

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“…Like Fisher (1922), Diewert (1976), as well as Lloyd (1975), Braithwait (1980), Manser and McDonald (1988), and Aizcorbe and Jackman (1993).…”

Section: Ces-preferences and The Theoretical Price Levelmentioning

confidence: 98%

“…This is for example the approach of Aizcorbe and Jackman (1993), Manser and McDonald (1988), and Braithwait (1980) when assessing the magnitude of substitution bias as well as of Aizcorbe, Corrado, and Doms (2000) and Silver and Heravi (2002) in the comparison of hedonic and matched model price indexes.…”

Section: Introductionmentioning

confidence: 99%

On Both Sides of the Quality Bias in Price Indexes

Hobijn¹

2002

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractIt is often argued that price indexes do not fully capture the quality improvements of new goods in the market. Because of this shortcoming, price indexes are perceived to overestimate the actual price increases that occur. In this paper, I argue that the quality bias in price indexes is just as likely to be upward as it is to be downward. I show how both the sign and the magnitude of the quality bias in the most commonly applied price index methods are determined by the cross-sectional variation of prices per quality unit across the product models sold in the market.I do so by simulating a model of a market that includes monopolistically competing suppliers of the various product models and a representative consumer with CES (constant elasticity of substitution) preferences. I illustrate the bias in the commonly applied price index methods by comparing their estimates of inflation with the theoretical inflation rate implied by the data-generating process.

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“…1 2 For example, Diewert (1976). 1 3 For example, Lerner (1935-36), Pollak (1971), Afriat (1977), Varian (1982) and Manser and McDonald (1988) 1 4 A superlative index is one which is based upon a cost function which can provide a second order approximation to any well behaved cost function (see Deiwert (1976) and (1981)). The term, on this de…nition, is due to Diewert. and this can be tested nonparametrically in terms of the Generalised Axiom of Revealed Preference 15 , 16 .…”

Section: Calculating True Cost-of-living Indicesmentioning

confidence: 99%

A non-parametric bound on substitution bias in the UK retail prices index

Blow¹,

Crawford²

1999

Working Paper Series

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This paper uses revealed preference restrictions and nonparametric statistical methods to bound true cost-of-living indices. These are compared to the popular price indices including the type used to calculated the UK RPI. This is used to assess the method of calculating the RPI for substitution bias.Key Words: Cost-of-living indices, substitution bias, revealed preference.JEL Classi…cation: C43, D11. Acknowledgements:We are very grateful to Richard Blundell and Martin Browning for many helpful comments and for allowing us to draw upon jointly authored work. We are also grateful to J. Peter Neary, Zoe Smith and seminar particpants at University College Dublin, the Institute for Fiscal Studies and Southampton University. Financial support from the ESRC (award number: R000222725) and the Bank of England is gratefully acknowledged. Material from the FES made available by the ONS through the ESRC Data Archive has been used by permission of the controller of HMSO. Neither the Bank of England, the ESRC, ONS nor the ESRC Data Archive bear responsibility for the analysis or the interpretation of the data reported here. The authors are responsible for all errors.

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

Cited by 101 publications

References 17 publications

Testing Consumer Theory: Evidence from a Natural Field Experiment

Testing Consumer Theory: Evidence from a Natural Field Experiment

On Both Sides of the Quality Bias in Price Indexes

A non-parametric bound on substitution bias in the UK retail prices index

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