An official website of the United States government
United States Department of Labor
United States Department of Labor
The .gov means it's official.
Federal government websites often end in .gov or .mil. Before sharing sensitive information,
make sure you're on a federal government site.
The site is secure.
The
https:// ensures that you are connecting to the official website and that any
information you provide is encrypted and transmitted securely.
Office of Survey Methods Research
SHARE ON:
More Information
Published Year: 2020
Survey/Program(s): Office of Prices and Living Conditions
Catalog: Economic Working Paper
WP Number: WP-531
Download PDF
Changing Tastes Versus Specification Error in Cost-of-Living Measurement
Abstract
Several recent papers aim to account for changing preferences in cost-of-living indexes (COLI). Workhorse models like Constant Elasticity of Substitution (CES) attribute the errors in demand regressions entirely to preferences, leaving no room for other sources of error. Using a Monte Carlo experiment and retail scanner data, I find evidence that model misspecification can lead to misleading conclusions about the degree of taste change reflected in CES-based price indexes. Nevertheless, under misspecification, a Sato-Vartia index still approximates a conditional COLI that fixes tastes to an intermediate level.