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Office of Survey Methods Research
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Published Year: 2019
Survey/Program(s): Office of Prices and Living Conditions
Catalog: Economic Working Paper
WP Number: WP-515
Publication Status / Disposition: Journal of Economic and Social Measurement, vol. 46, no. 2, pp. 109-147, 2022.
DOI: 10.3233/JEM-220485
https://content.iospress.com/articles/journal-of-economic-and-social-measurement/jem220485
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Revisiting taste change in cost-of-living measurement
Abstract
This paper compares conditional and unconditional cost-of-living indexes (COLI) when tastes change, focusing on the Constant Elasticity of Substitution model. A consumer price index typically targets a conditional COLI, which evaluates price change given set of preferences. An unconditional COLI aims to also capture the welfare effects of changing tastes, but it requires stronger assumptions. Using retail scanner data for food and beverage products, I find COLIs conditioning on current period tastes exceed those conditioning on prior period tastes. Consistent with previous studies, I find an unconditional COLI tends to reflect negative direct contributions from taste change.