Index

A

ACNielsen, 266, 270-271

Aggregation. See also Subgroup indexes

across consumers, 26-27

across households, 4, 45, 79, 223-226, 230- 231, 240-246

for COGIs, 43, 77-79

for COLIs, 4, 15, 51-52, 53, 61-62, 85-86, 242

conceptual issues, 39, 51-52

in CPI, 15, 23-24, 243-244, 305, 308, 311

data collection issues, 27

defined, 305

demand, 243, 244

democratic indexes, 4, 5, 26-27, 45, 77-79, 86, 235 n.9

expenditure-weighted averaging, 26, 52, 60

geometric means formula, 5, 23, 24, 39, 50, 60, 77, 127, 210, 215 n.24, 279-280, 308

heterogeneity issue, 4, 26, 125 n.18, 223- 226, 229, 240-241

of individual price indexes, 44-45, 215, 235 n.9

lower-level, 23, 61-62, 309

mathematical approach, 77-79

in MCPI, 182, 188

national indexes, 4, 25, 26, 46, 87, 214, 219-221

plutocratic indexes, 4, 5, 26-27, 45, 77-79, 86, 235 n.9

population average of budget shares, 79

quality change adjustments and, 125 n.18

recommendations, 240-241

representative consumer concept, 241-246

strata indexes, 235 n.9

substitution effects and, 24-25, 26, 52

in superlative indexes, 52, 53, 215

upper-level, 24, 199, 311

user costs and, 34, 72

in wage indexes, 200-201

American Housing Survey, 11, 36, 147

Apparel, 29, 67, 72, 117, 118, 120 nn.11&12, 124, 130, 142, 147, 227

Appliances and electronics, 6-7, 72, 114, 131, 138, 141, 147, 148, 163 n.12, 233 n.7.

See also individual items

Area strata, 311

Automobiles, 28-29, 33, 35, 72, 107, 109, 110, 111, 119, 121, 124, 142, 147-148, 227, 233 n.7



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At What Price?: Conceptualizing and Measuring Cost-of-Living and Price Indexes Index A ACNielsen, 266, 270-271 Aggregation. See also Subgroup indexes across consumers, 26-27 across households, 4, 45, 79, 223-226, 230- 231, 240-246 for COGIs, 43, 77-79 for COLIs, 4, 15, 51-52, 53, 61-62, 85-86, 242 conceptual issues, 39, 51-52 in CPI, 15, 23-24, 243-244, 305, 308, 311 data collection issues, 27 defined, 305 demand, 243, 244 democratic indexes, 4, 5, 26-27, 45, 77-79, 86, 235 n.9 expenditure-weighted averaging, 26, 52, 60 geometric means formula, 5, 23, 24, 39, 50, 60, 77, 127, 210, 215 n.24, 279-280, 308 heterogeneity issue, 4, 26, 125 n.18, 223- 226, 229, 240-241 of individual price indexes, 44-45, 215, 235 n.9 lower-level, 23, 61-62, 309 mathematical approach, 77-79 in MCPI, 182, 188 national indexes, 4, 25, 26, 46, 87, 214, 219-221 plutocratic indexes, 4, 5, 26-27, 45, 77-79, 86, 235 n.9 population average of budget shares, 79 quality change adjustments and, 125 n.18 recommendations, 240-241 representative consumer concept, 241-246 strata indexes, 235 n.9 substitution effects and, 24-25, 26, 52 in superlative indexes, 52, 53, 215 upper-level, 24, 199, 311 user costs and, 34, 72 in wage indexes, 200-201 American Housing Survey, 11, 36, 147 Apparel, 29, 67, 72, 117, 118, 120 nn.11&12, 124, 130, 142, 147, 227 Appliances and electronics, 6-7, 72, 114, 131, 138, 141, 147, 148, 163 n.12, 233 n.7. See also individual items Area strata, 311 Automobiles, 28-29, 33, 35, 72, 107, 109, 110, 111, 119, 121, 124, 142, 147-148, 227, 233 n.7

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At What Price?: Conceptualizing and Measuring Cost-of-Living and Price Indexes B Base period, 41, 42, 69, 305, 309, 311 Basket price index. See Cost-of-goods index Bias in CEX, 253, 254-255 duration neglect, 54 in hedonic quality adjustment methods, 128, 129, 133, 139, 140, 249 in inflation indexes, 217-218 in item replacement methods, 112-114, 121- 122, 136 MCPI, 148, 185-186, 188 new goods, 31, 32, 107-108, 112-121, 146- 148, 156-158, 160-161, 162, 273 outlet, 8, 33, 128, 168 n.16, 170, 172, 173- 174 point-of-introduction, 158-159, 160-161 reporting, 254-255 sample selection, 128, 156-157 seasonal, 234 substitution, 8, 33, 59-62, 93, 113, 128, 147, 168 n.16, 170, 172, 173-174, 248 n.18 within-sample, 140 Boskin commission, 38, 39 on conceptual basis for CPI, 3, 14, 41, 73 criticisms of CPI, 1, 14, 27, 62 defined, 305 on domain of CPI, 66, 96 new goods bias estimates, 32, 157, 162, 163 outlet substitution bias estimates, 173-174 quality adjustment bias estimates, 27, 108, 109 n.2, 112-114, 115, 116-117, 119, 121, 131, 139, 146-148 on subgroup indexes, 228, 229, 250 on theoretical validity of CPI, 109 n.2 Bureau of Economic Analysis (BEA), 4, 102, 105, 189, 210, 214, 253, 274, 310 Bureau of Labor Statistics, 306 charge to committee, 17 commodity analysts, 107, 306 quality adjustment approaches, 39, 73, 107- 108, 113 n.6, 114-122, 129-140 ScanData initiative, 266-267, 269 C Capital gains and losses, 72 Cellular phones, 8, 31, 32, 107, 124-125, 140, 148, 156, 161, 165 Census Bureau, 255, 310 Centers for Medical and Medicaid Services, 10, 189, 190 Chain drift, 167, 257, 308 Chained index, 162, 167, 210, 253 n.2, 277, 305, 308, 310 Choke price. See Virtual price Class-mean method, 117, 118, 119, 121, 134 n.30, 136-137, 139, 305-306 Climate change, 20 Commodities and Services (C&S) Survey, 11, 36, 37, 263, 281-282, 306 Commodity analysts (BLS), 107, 116, 118, 125, 134, 138-139, 306 Comparison situation conceptual issues, 41, 42, 48-49, 51 period-based, 41, 306, 310, 311 place-based, 66-67, 69-70 Compensating variation, 48, 81, 153 Compensation issues child support, 209 COGI and, 70, 71 COLI and, 48, 51, 58, 61, 70-71, 81 conceptual bases for indexes, 48, 51, 58, 61, 70-71, 81 domain considerations, 21, 70, 103-105 employer-paid benefits, 21, 98, 103-105 homeowners, 70-71, 72 MCPI components and, 186 social security recipients, 40, 43, 48 and standard of living, 48 superlative indexes, 60, 61, 191 Computers, 29, 109, 110, 117, 120 n.12, 124, 127, 129, 130, 134, 135, 140, 142, 147, 156, 166 Conceptual bases for indexes aggregation of prices, 39, 51-52 availability of data and, 15, 42-43, 50 basket price (cost-of-goods) approach, 2-3, 14, 16, 18-19, 38-39, 41, 42-46, 47, 48- 49, 50, 57, 74-79, 94 COGI vs. COLI, 57-72 comparison situation, 41, 42, 48-49, 51 compensation issues, 48, 51, 58, 61, 70-71, 81 consumer demand functions, 49-50 cost-of-living approach, 2-3, 14, 15, 16, 18- 19, 38-39, 41, 43, 46-53, 57, 58, 65-68, 69, 79-93, 283-292 CPI, 1, 2-3, 8, 14, 18-19, 38, 39, 41, 42, 73 criticisms of, 40, 52-53

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At What Price?: Conceptualizing and Measuring Cost-of-Living and Price Indexes design considerations, 11, 40, 42, 43, 97, 191-192 domain-related, 3, 65-68, 94, 96-98 homotheticity in preferences, 49, 50-51 income changes, 2, 90 mathematical approach, 74-93 MCPI, 181-185 public perceptions and understanding of, 39, 58-59 purpose of index and, 40, 42, 43 quality adjustment, 2, 3, 14, 19, 28, 30, 39, 40, 57, 59, 62-64, 97-98, 106 reference period, 41, 42, 47-49, 51 satisfaction, 47, 53, 55-57 stochastic approach, 41-42, 68 stocks and flows, 33-35, 71-72 subpopulations and, 229-232 substitution effect, 2, 3, 39, 47-48, 50-51, 52-53, 58, 59-62 superlative indexes, 50-51, 53, 83-85 taste changes, 2, 53, 59, 64, 67, 69-70 test approach, 41-42, 50, 68 theoretical, 39, 40, 43-58, 73, 74-93 utility and choice, 47, 53-55 virtual demand for new commodities, 158 n.6 Conditional cost-of-living index (CCOLI), 39, 65-68, 69, 70, 86-90, 306 Congressional Budget Office, 259 Conrad, Kent, 228 Constant-elasticity-of-substitution (CES) price index, 6, 60-61, 91-93, 194 Constant utility index, 14 Consumer demand functions, 49-50, 306 Consumer Expenditure Survey (CEX), 42, 79, 213 accuracy, 12, 36, 253-256, 261 cost, 234, 253, 261 defined, 306, 307 description of, 189, 238, 244, 280-281 Diary Survey, 257, 280-281 expenditure weights, 11-12, 36, 253-256, 261, 274-275 frequency, 164-165, 256-257, 275 NIPA expenditure estimates compared, 214 POPS integrated with, 37, 264-266, 275 Quarterly Interview Panel Survey, 257, 280 questionnaire and structural issues, 36, 261- 262 research needs, 11-12, 261, 274-275 sample size, 12, 36, 131 n.25, 257-261 scanner technology and, 271-272 subgroup data, 4, 203 n.11, 227, 234, 236, 247, 248, 255, 259 substitution with new goods, 164-165 uses, 252, 261, 277, 281 Consumer Price Index (CPI) aggregation in, 15, 23-24, 243-244, 305, 308, 311 biases in, 112-122, 129, 250 COLI-based, 2-3, 4, 14, 15, 18-19, 24, 94, 104, 110 n.3, 112, 144-145, 272-273 comparison period, 42 conceptual basis, 1-2, 8, 15-16, 18-19, 38, 39, 41, 42, 73, 94, 221 criticisms of, 1, 13, 14, 27, 39 defined, 306 domain, 3-4, 16, 17, 19-21, 73, 94, 105 experimental version (CPI-E), 11, 197, 203 n.11, 228, 246-250, 307 fixed-weight method, 14-15 growth of, 207-208 hedonic quality adjustment, 6-7, 132-137, 138, 139-140, 141 Housing Survey, 307 improvement initiative, 131 n.25, 145, 164, 166 n.14 introduction of new goods, 157, 161-167 item replacement, 134, 305-306, 307-308 item strata, 23, 130, 131, 156, 163, 307, 309 modified Laspeyres-based, 24, 49, 52, 61, 62, 97 n.2, 104, 111, 114, 221, 276-277, 306, 309 NIPA compared, 217, 219-221 product sampling and item identification, 107-108, 250 proxy prices, 72, 120, 307 PSU, 278-279, 310 quality adjustments, 14, 16, 27, 39, 106, 107, 110 n.3, 111, 112-122, 116-121, 130-137, 209-210 quantity-base period, 276-277 recalculation (CPI-U-RS), 202 n.8, 220, 307 reference period, 42, 276 research series, 210 revision frequency, 115, 166 n.13, 221 structure and elements, 23-24, 156, 163, 278-280, 307, 309 substitution behavior and, 15-16, 23-25, 26, 169-170, 113 superlative index, 24-25, 97, 191, 194-195, 207-208, 210

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At What Price?: Conceptualizing and Measuring Cost-of-Living and Price Indexes theoretical basis, 73 urban sample (CPI-U), 197-198, 203 n.11, 207, 211, 228, 247, 249, 250, 257, 307 uses, 1, 13-14, 35, 192, 218 wage-earner sample (CPI-W), 197-198, 203 n.11, 207, 228, 246, 250, 257, 307 weights/weighting, 11-12, 14, 15, 26, 104, 163, 179, 180, 198, 227, 307 Consumer substitution COGI and, 5, 21-23, 25, 59, 70 COLI and, 2, 6, 25, 39, 47-48, 50-51, 52- 53, 57, 58, 59-62, 66, 90 conceptual issues, 2, 3, 39, 47-48, 50-51, 52-53, 58, 59-62, 242 defined, 306 and domain, 66, 95 full-service retail to discount outlets, 169- 170, 173 heterogeneity of, 26, 224 standard of living and, 73, 215 n.24 superlative index and, 5-6, 23, 25, 60, 61, 84, 85, 93, 96, 113 n.6, 215 Contingent valuation, 98 Contract rents, 307 Cost functions, 80, 82, 83-84, 85, 86, 91-92 conditional, 88-90 Gorman polar form, 245 rationed, 90 Cost-of-goods index (COGI). See also Laspeyres index; Paasche indexes aggregation, 43, 77-79 augmented, 103 averages of, 76-77, 82 base period, 41, 42, 74, 77 bias, 59 COLI compared, 2-3, 16, 18-19, 24, 38-39, 57-72 comparison period, 16, 21-23, 41, 42, 74 compensation issues, 70, 71 conceptual bases, 2-3, 14, 16, 18-19, 38-39, 41, 42-46, 47, 48-49, 50, 57, 74-79 defined, 1-2, 44, 306 domain, 19, 65-66, 94, 95 item replacement, 111-112 mathematical approach, 74-79 objectives, 16 outlet substitution bias, 8, 172, 176 public understanding of, 58 quality adjustment, 62-64, 111-112, 123 rationale for, 43 reference period, 16, 21-23, 41, 74 and substitution, 5, 21-23, 59, 70, 224 and taste change, 24, 69 theory, 43-46 time reversal test, 76-77 Cost-of-living index (COLI) aggregation, 4, 15, 51-52, 53, 61-62, 85-86, 242 base period, 80-81, 82, 91, 92 calculation, 43-44, 49-50, 172 CES, 91-93 choice-based, 53-55, 57 COGI compared, 2-3, 16, 18-19, 24, 38-39, 57-72 comparison period, 41, 48-49, 51, 53 compensation calculation, 48, 51, 58, 61, 70-71, 81, 153 conceptual bases, 2-3, 14, 15, 16, 18-19, 38-39, 41, 43, 46-53, 57, 58, 65-68, 69, 79-93, 283-292 conditional, 3, 4, 39, 65-68, 69, 70, 73, 86- 90, 94-96, 115, 306 cost/expenditure function, 80, 82, 83-84, 85, 86, 89-90 counterfactual cost, 80, 91 criticisms and controversies, 15-16, 52-53 data collection, 289-292 defined, 2, 15, 95, 306 demand functions, 49-50, 63, 83, 84 democratic, 52, 242, 288, 292 domain, 3-4, 17, 19-21, 39, 65-68, 69, 70, 73, 86-90, 94-100, 104, 306 equivalent variation, 81, 153 expenditure, 195 Fisher ideal index as, 50, 52, 60, 286, 287, 288 geometric means formula, 5, 23, 24, 39, 50, 60, 77, 127, 210, 215 n.24, 279-280, 308 homotheticity of preferences, 49, 50-51, 60, 82, 84, 308 income effects, 2, 90 index numbers, 80, 91 indifference curve, 80, 86, 90, 91 item replacement methods, 110 Laspeyres–Paasche index relationship in, 23, 47, 48-49, 51, 80-82, 87, 90-91, 285, 287-289 mathematical approach, 79-83, 90-91 medical care, 19, 86-90 multiperiod, 104 n.10 new goods bias, 8, 31, 160, 161

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At What Price?: Conceptualizing and Measuring Cost-of-Living and Price Indexes objectives, 15, 16 outlet substitution bias, 8, 168, 172, 174, 176 plutocratic, 52, 242, 244, 287-288, 292 public understanding of, 58-59 quality adjustment, 2, 3, 18-19, 39, 57, 62- 64, 86-90, 109-114, 115, 123, 168 reference period, 41, 47-49, 51-52, 53, 82 representative consumer, 241-246 satisfaction-based, 55-57 Slutsky matrix, 90, 91 social, 51-52, 85-86 standard-of-living measurement, 3, 15 n.2, 19, 41, 46-47, 48, 49, 55-56, 59, 63, 69, 80, 82, 95 statistical definition and estimation of, 283- 291 substitution effects, 3, 6, 15-16, 39, 47-48, 50-51, 52-53, 57, 58, 59-62, 66, 90, 224 superlative indexes as, 50-51, 57 and taste change, 2, 16, 24, 69-70 Taylor series approximation, 90-91 theoretical bases, 2, 4, 15, 19, 40, 46-53, 58, 79, 83, 110, 113 “true,” 1, 13, 14, 48, 81, 82 unconditional, 4, 17, 66, 68, 69, 70, 73, 96- 98, 115 utility function, 53-55, 79-80, 82, 83-84, 85, 86-87 Counterfactual cost, 80, 91 Crime rates, 4, 20, 73, 95, 97, 98 Cross-outlet price linking, 169, 171 Current Population Survey (CPS), 201-202, 234, 274 D Data collection for CPI, 306 C&S Survey, 11, 36, 37, 252, 263, 281-282 CEX, 11-12, 24, 36, 213, 227, 234, 236, 241, 244, 252-263, 271-272, 274, 280- 281 and conceptual bases for indexes, 15, 42-43, 50, 197 costs, 232, 234, 271 for democratic indexes, 215-216, 223 for hedonic quality change adjustments, 124, 126 n.19, 128-129, 131-132, 135, 143, 144 heterogeneity of consumers and, 27, 223, 231, 241 integrated CEX/POPS, 37, 264-266, 271, 275 lagged, 6, 15, 25, 31-32, 42-43, 50, 57, 61, 76, 129, 144, 165, 183, 219-220, 256- 257 from manufacturers/vendors, 132 n.26 MCPI, 9, 183 modified Laspeyres, 276-277 new goods, 30-32, 163-165 nonsampling errors, 260 n.5 POPS/TPOPS, 11, 36-37, 163-164, 167- 168, 227 n.3, 232, 233 n.5, 234, 262, 267, 281-282, 310 recommendations, 5, 11-12, 241, 261, 274- 276 sample rotation, 8, 31, 33, 119-120, 140, 156, 157, 163, 164, 165, 167, 172 sampling errors, 260 n.5 with scanners, 5, 43, 45, 129, 142 n.35, 197, 233, 234, 235, 236, 241, 266-273, 275, 289, 291 scope of, 23, 27, 226-227 Standard Industrial Classification system, 264 for subgroup indexes, 4, 5, 27, 197, 226- 228, 229, 231-235, 241 Deletion method, 117, 118, 119-120, 125, 128, 135, 136-137, 139, 305, 307 Demand aggregation, 243, 244 functions, 49-50, 63, 83, 84 for new commodities, 158 n.6, 159-160 Democratic indexes aggregation, 4, 5, 26-27, 45, 77-79, 86, 235 n.9 data collection for, 215-216, 223, 252, 270- 271 defined, 52, 307 new goods in, 160 n.8, 162 for public transfer program indexing, 198- 199 for subgroups, 5, 26-27, 229, 237-240 Demographic issues, and index construction, 24-25, 26, 32, 53, 110, 172-173 Design of indexes. See also Conceptual bases for indexes; Domain of indexes; Public transfer payment indexing; Social security benefits and conceptual framework, 11, 40, 42, 43, 97, 191-192 inflation-indexed treasury securities, 192, 210-212

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At What Price?: Conceptualizing and Measuring Cost-of-Living and Price Indexes inflation indicators, 216-221 limits on, 35 for monetary policy setting, 35, 40, 192, 216-221 as output deflator, 35, 214-216, 218 for poverty line, 40 for private contracts, 35, 192, 208-210, 218 for social security compensation, 11, 35, 40, 43, 48, 192 tax-related, 35, 40, 43, 192, 212-214 wage-related, 11, 35, 199-206, 207-208 Diewert, W. Erwin, 23 Direct characteristics method, 126, 128-129, 133, 142, 143-144, 152-154 Direct comparison method, 109, 116-118, 139, 307 Direct consumption costs, 213 Direct time dummy method, 126-128, 143, 145-146, 151-152, 153 Directed reinitiation, 155 n.1 Disaggregation of households, 45 Domain of indexes. See also Design of indexes COGI, 19, 65-66, 94, 95 compensation issues, 21, 70, 103-105 conceptual issues, 3, 65-68, 94, 96-98 conditional COLI, 4, 39, 65-68, 69, 70, 73, 86-90, 95-96, 306 CPI, 3-4, 16, 17, 19-21, 73, 94, 105 cross-place comparisons, 66-67 current practice, 65 and economic indicators, 97 employer-paid benefits, 21, 98, 103-105 environmental variables, 4, 16, 19-20, 66- 67, 73, 94-102, 105 MCPI, 9, 10, 95, 97-98, 178-179, 185-186, 189-190, 220 measurement problems, 20, 21, 97, 98-102 NIPA, 220 public goods, 4, 19-21, 94, 96, 98-102, 104 and public transfer programs, 97 quality changes and, 67, 95, 97-98, 101 recommendations, 4, 105 separability issue, 68 substitution and, 66, 95 superlative indexes, 95-96 supplemental indexes and satellite accounts, 4, 101-102, 103, 105 taxes and, 20-21, 97, 102-103 technological changes and, 67-68, 88-89, 97 unconditional COLI, 4, 17, 66, 68, 69, 70, 96-98 Durable goods, 71-72, 230 n.4 DVDs, 131, 138 E e-Commerce, 170-173 Econometric modeling of demand functions, 49-50, 63 of new goods, 160 of quality adjustments, 63, 64, 139, 145-146 Economic theory of consumer behavior, 2, 19, 40, 46-53, 58, 79, 83, 110, 242, 243 Elderly, price indexes for, 11, 196-197, 199, 207, 228-229, 249-251 Employer-paid benefits, 9, 10, 21, 98, 103-105, 179, 201, 220 Employment Cost Index (ECI), 201 Entry-level items (ELI), 136, 140, 155 n.1, 164, 165, 167, 234, 236, 262, 307 Environmental (outside) variables benefit—cost assessment, 100 n.7 conceptual issues, 66-67, 69, 94-98 CPI domain, 4, 19, 73, 105 measurement, 16, 19, 20-21, 98-102 superlative indexes and, 53 taxes and, 20-21, 103 theoretical framework, 86-87, 88 Equivalent variation, 81, 153 Expenditure function, 80 Expenditure weight, 26-27, 52, 86, 166, 167, 307 Expenditure-weighted averaging, 26, 52, 60 F Fads, 159 n.7 Federal income tax system. See Taxes Fisher ideal index for aggregation, 52, 86, 215, 221, 248 COLI approximation, 82, 83-84 construction approach, 42-43, 50 defined, 77, 308, 310 introduction of new goods, 162 n.10 mathematical approach, 77, 83-84, 85 plutocratic, 79 production lag, 42-43 publication of research series, 210 quality change adjustment, 152, 153 real-time, 219-220 and substitution bias, 23, 52, 60, 248 n.18

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At What Price?: Conceptualizing and Measuring Cost-of-Living and Price Indexes Fisher, Irving, 23, 41 Fixed-weight index, 308 Food and beverages, 64, 83, 112, 117, 146, 159, 160, 170, 173, 174 G Geometric means formula, 5, 23, 24, 39, 50, 60, 77, 127, 210, 215 n.24, 308 Gillingham-Greenlees exact index, 213-214 “Goodness” of goods, 64 Griliches neutrality, 151, 152 Gross domestic product (GDP), 13-14, 98 n.4, 100, 179, 209, 211, 216, 217, 218, 220, 221, 240 Group indexes. See Subgroup indexes H Health insurance, 9, 10, 21, 104-105, 179-180, 185-188, 189, 203, 220 Health status, as utility function, 87-90, 95, 187 Hedonic functions, 123, 149 Hedonic quality adjustment, 64 advantages, 123 assessment of methods, 7, 145-146 audit of other methods with, 6, 120, 128 backward-looking method, 150 bias in, 128, 129, 133, 139, 140 BLS application of, 108, 113 n.6, 129-140 brand-specific, 132-133, 145-146 candidates for, 28-29, 119, 124, 130-132, 142 characteristics method, 126, 128-129, 133, 142, 143-144, 152-154 comparability decisions for, 6, 28, 29, 134- 139, 140, 142, 145 complementary products, 142-143 consumer heterogeneity and, 124-125 CPI model, 6-7, 132-137, 138, 139-140, 141 data requirements, 124, 126 n.19, 128-129, 131-132, 135, 143, 144, 269 defined, 101 direct methods, 29, 121, 126-129, 134, 143- 144, 151-154, 306, 307 effect on CPI, 134-137, 138 forward-looking method, 150 indirect methods, 29, 125-126, 127 n.22, 129, 130, 132, 134, 135-136, 144, 150- 151, 308-309 limitations of methods, 140 list price vs. transaction price, 132 mathematical description of, 123-124, 149- 154 in MCPI, 187-188 new goods and, 7 outlet substitution and, 174, 176 panel cautions, 6-7, 133-134, 139-140, 141, 144-145 principle, 6, 122 recommendations, 6-7, 140-146 reliability, 7, 124, 129-130 time dummy method, 126-128, 143, 145- 146, 151-152, 153 updating intensities, 144 uses, 29, 122, 123, 124, 130, 135 Hedonic treadmill hypothesis, 56, 69-70 Heterogeneity. See also Subgroup indexes across-stratum, 223-224, 227, 229 and aggregation, 4, 26, 125 n.18, 223-226, 229, 240-241 and construction of indexes, 18, 26, 226, 240-241 and data collection methods, 223, 241 and hedonic quality adjustment methods, 124-125 and inflation rates, 222, 225-226 and outcomes-adjusted medical index, 184 in prices paid, 46, 225-226, 227 n.3 public goods preferences, 99 n.6 in substitution behavior, 26, 224 within-stratum, 223, 227-228 Household aggregation across, 4, 223-226, 240-246 disaggregation into individual members, 45 furnishings and equipment, 72, 254 modeling non-unitary behavior, 45 production function, 123 n.16 scanner technology, 271-272 Housing. See Shelter I Imputation of prices, 121, 136, 159, 305 Income distribution, 24-25, 26, 53, 199, 206, 227, 239-240, 243 Income effects, 2, 90, 224 Index drift, 167, 168 n.17, 257, 308 Indifference curve, 80, 86, 90, 91 Individual price indexes, 44-46, 78-79

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At What Price?: Conceptualizing and Measuring Cost-of-Living and Price Indexes Inflation rates age stratification, 246, 249-251 core, 218 effects of bias in indexes, 217-218 heterogeneity and, 222, 225-226 income stratification, 239-240, 247-249 long-run, 61 macroeconomic policy indicators, 1, 97, 198, 216-221 NIPA vs. CPI, 217 quality change adjustments and, 27, 225 and relative price variation, 225 stripped, 218-219 subgroup differences, 222, 239-240, 246- 251 tax-rate indexing, 13, 40, 43, 212-214, 222 Treasury securities indexed to, 1, 192, 210- 212 Information Resources, Inc., 266, 271 Input substitution, 10, 181-184, 188-189 Interest rates (nominal), 72 Internet, 45, 170-173 Item reclassification, 31, 155, 162, 163, 165- 166, 167 Item replacement. See also Substitution class-mean method, 117, 118, 119, 121, 134 n.30, 136-137, 139, 305-306 COLI calculations, 110 comparability decisions by analysts, 6, 28, 29, 116-117, 118, 134-139, 140, 142, 145 defined, 106, 309 deletion method, 117, 118, 119-120, 125, 128, 135, 136-137, 139, 305, 307 direct comparison method, 109, 116-118, 139, 307 explicit cost-based adjustment, 28-29, 118- 119, 125, 134, 307-308 in-store procedure, 125, 126, 134, 156 overlap pricing, 117, 118, 119, 310 quality adjustments, 28-29, 31, 106, 110, 116-121, 125, 130-132, 135, 156 research recommendations, 141 targeted, 8, 130-132, 164, 166 within-sample, 156, 161 Item rotation, 31, 164, 168 Item strata, 23, 156, 162, 164, 167, 307, 309, 311 Item weighting, 247-248, 309 K Konus, Alexander, 23 L Laspeyres index, 308 advantages, 44, 60, 75-76 aggregation, 77-79, 86 and COLI, 47, 48-49, 50, 51, 53, 59, 80-82, 87, 90-91 complexity, 58 conceptual basis, 42 defined, 42, 44, 309 democratic, 242 domain, 68 escalation with, 81, 215 as inflation indicator, 218, 247, 248 introduction of new goods, 158 n.6, 161- 162 mathematical approach, 74-79 modified for CPI, 25, 62, 97 n.2, 111, 114, 168 n.17, 272-273, 306, 309 national vs. individual, 44-46, 78 outlet rotation and, 168 n.17 quality adjustments, 111-112, 129, 152, 153, 154 quantity used for pricing, 72, 78, 82-83 representative agent, 246, 247, 248 seasoned, 62 substitution bias, 5, 21-23, 24, 59, 60, 62, 251 n.20 utility function, 92 weights, 45, 75 Law of one price, 169 n.18, 172, 180, 187 Life expectancy, 4, 20, 28, 67, 73, 96, 97-98, 184 Link period, 309 M Macroeconomic policy, inflation indicators for, 1, 35, 40, 97, 192, 216-221 Marshall Edgeworth price index, 77 Medical Care Price Index (MCPI) aggregation, 182, 188 bias in, 148, 185-186, 188, 250-251 conceptual issues, 17-18, 19, 30, 96, 181- 185

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At What Price?: Conceptualizing and Measuring Cost-of-Living and Price Indexes consumer heterogeneity and, 224, 228 current procedures, 178-181 data collection, 9, 183, 255-256 defined, 309 diagnosis-based pricing, 9, 182-184, 188-189 domain, 9, 10, 20 n.5, 86-90, 96, 97-98, 105, 178-179, 185-186, 189-190, 220 for the elderly, 197, 203, 249, 250-251 health insurance considerations, 9, 10, 21, 104-105, 179-180, 185-188, 189, 220, 255 hospital and physician services, 30, 112, 148, 181 input substitution, 10, 181-182, 188-189 measurement issues, 17-18, 181-185 outcomes-adjusted, 10, 181, 184, 187, 190 prescription drugs, 30, 112, 148, 163, 186 quality adjustments, 10, 19, 20 n.5, 28, 30, 40, 67, 86-90, 112, 114, 117, 148, 181, 184-185, 187-188, 190 recommendations, 9-10, 105, 188-190 weights, 9, 179, 180, 182, 183, 184, 185, 186, 189, 203, 214 n.22, 220, 255 Medicare and Medicaid, 9, 180, 182, 185, 203, 214 n.22, 220, 225, 255 Microwave ovens, 29, 116, 118, 131, 133, 137- 138 Motor vehicle accident rates, 96 N National Bureau of Economic Research, 311 National economic accounts, 4, 20, 101-102, 105 National Income and Products Accounts, 89, 102 n.8, 179, 203, 214-215, 216, 217, 219-221, 253, 254 National price indexes, 4, 8, 25, 26, 44-46, 78- 79, 87, 160, 214, 219-221 National security, 21, 96, 97 New goods bias, 31, 32, 107-108, 112-121, 146-148, 156-158, 160-161, 162, 273 data collection issues, 30-32, 163-165, 273 defined, 7, 155-156 demand for, 158 n.6, 159-160 effect, 31-32, 67-68 improved goods contrasted, 106-107 introduction into index, 7-8, 31-32, 97-98, 111, 112, 120 n.12, 131 n.25, 135, 155 n.1, 161-167 item reclassification, 31, 155, 162, 163, 165-166, 167 measurement issues, 7, 31-32 outlet rotation and, 7, 31, 32, 135, 155, 164, 168 in output-change indexes, 215, 216 plutocratic vs. democratic index, 160 n.8, 162 price cycle, 32, 161-163 quality-improved items, 31, 156, 161 recommended adjustments for, 8, 160-161, 165 sample rotation frequency, 8, 31, 163-164, 165, 167 supplemental, 107, 155 n.1, 163 valuation of, 3, 18, 64, 73, 110, 155, 157-161 variety considerations, 110 n.3, 114, 146 virtual price vs. introductory price, 8, 31, 157-160, 311 weight updating, 32, 155, 163, 166, 167 welfare effects, 31, 157, 159, 160 New outlets. See Outlet rotation; Outlet substitution Nonlinear pricing, 107 Nonsampling errors, 260 n.5 Norwood, Janet, 228 O Outcome pricing, 190 Output deflation, 1, 13-14, 35, 98, 101-102, 214-216, 218, 240 Outlet rotation cross-outlet price linking, 169, 171 current practice, 167-173 defined, 309 e-commerce and, 170-173 hedonic techniques applied to, 174, 176 market shift to discount stores and, 8, 33, 169-170, 173, 176 new-product introduction, 7, 31, 32, 135, 155, 164, 168 pricing components, 9, 171, 172, 174-175, 176, 263 probability of selection, 167-168 purpose, 167-168 quality-related issues, 8-9, 32-33, 168-170, 171, 172, 173, 174-175, 176 recommendations, 9, 176-177 sampling frequency, 33, 164, 173 substitution bias, 8, 33, 128, 168 n.16, 170, 172, 173-174

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At What Price?: Conceptualizing and Measuring Cost-of-Living and Price Indexes Outlet substitution, 8, 128, 168-170, 172, 173- 174, 176, 224, 230, 273, 310 Overlap pricing, 117, 118, 119, 176, 310 P Paasche indexes, 308 aggregation, 77-79 averaging, 79 COLI and, 48-49, 50, 51, 53, 80-82, 87, 91 conceptual basis, 42 defined, 42, 44, 310 democratic, 79 introduction of new goods, 158 n.6, 162 mathematical approach, 75-79, 91 national vs. individual, 79 quality adjustments, 129, 152, 153, 154 representative agent, 246, 247, 248 substitution bias, 22-23, 251 n.20 usefulness, 57 utility function, 92 Penetration pricing, 163 n.11 Pension plans, employer-provided, 104, 203- 204 Personal consumption expenditure (PCE) data, 12, 37, 253-256, 274-275, 310 Personal consumption expenditure (PCE) deflator, 220, 221, 310 Plutocratic indexes aggregation, 4, 5, 26-27, 45, 77-79, 86, 235 n.9 bias, 244 COLI, 52, 242, 244 defined, 52, 222, 310 introduction of new goods, 160 n.8, 162 output-change measurement, 215 for public transfer program indexing, 198- 199 for subgroups, 5, 26-27, 229, 237-240 Point of Purchase Survey (POPS/TPOPS), 11, 36-37, 163, 167-168, 227 n.3, 232, 233 n.5, 234, 262, 264-266, 272, 281-282, 310 Pollution, 4, 97, 98, 101-102, 103 Preferences and COLI, 47, 49, 50, 54, 79-80 flexible functional form, 84, 86, 142 n.35 homothetic, 49, 50-51, 60, 82, 84, 92, 308 revealed, 54, 99 separability of, 68 Price heterogeneity, 46, 225-226 Private contracts, indexing, 35, 97, 192, 208- 210, 218 Private goods as bundles of characteristics, 122-123 characteristics, 108, 111, 112 defined, 20, 310 domain of CPI, 4 government-produced and -sold, 19, 20, 94 n.1 separability from public goods, 68 Producer price index (PPI), 130, 148, 174 n.23, 209, 219, 220 PSU, 278-279, 281-282, 310 Public goods defined, 20, 310 domain considerations, 19, 20-21, 94, 96, 98-100, 102-103, 104 pure, 21 sales taxes and, 21, 102-103 separability from private goods, 68, 103 valuation problems, 19, 98-100 Public perceptions of indexes, 39, 58-59 of quality, 111 Public transfer payment indexing, 13 beneficiaries with other income, 195-197 consumer heterogeneity and, 226, 231 CPI-U vs. CPI-W, 193, 197-198 criticisms of CPI, 13 domain issues, 97 for elderly people, 196-197, 207 lagged superlative index for escalation, 24, 25, 191, 194-195 plutocratic vs. democratic indexes, 198-199, 240 poverty-related programs, 206-207, 247 recommendations, 194-195 social security adjustments, 13, 25, 193- 199, 200, 204-206 SSI, 193, 206 for subgroups, 192-193, 206, 231 tax considerations, 195-196 wage indexes, 199-206 Pure price changes, 29, 127, 216, 230 Q Quality change adjustments and aggregation, 125 n.18 apparel, 29, 117, 118, 120, 130, 147

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At What Price?: Conceptualizing and Measuring Cost-of-Living and Price Indexes appliances and electronics, 29, 107, 109, 110, 114, 118, 120 n.12, 130, 131, 132, 133, 147 bias in, 27-28, 112-114, 121-122, 129, 133, 139, 140, 144, 249 BLS approaches, 39, 73, 114-122, 129-140 Boskin Commission criticisms, 27-28, 109 n.2, 112-114, 115, 116-117, 119, 120, 146-148 COGI view, 2, 62-64, 111-112 COLI view, 2, 3, 18-19, 39, 57, 62-64, 86- 90, 109-111, 112-114, 115 conceptual issues, 14, 19, 28, 30, 39, 40, 57, 59, 62-64, 98, 106 cost-based, 28-29, 118-119, 125, 134, 307- 308 in CPI, 14, 16, 18-19, 27, 39, 106, 111, 112-114, 115, 116-121, 130-137, 209- 210 defined, 114 domain issues, 67, 95, 97-98, 101, 115 durability of goods and, 71-72 food and beverages, 64, 108, 112, 117, 123, 146 forms of, 106-107 and inflation rates, 27, 225 item replacement methods, 27, 28-29, 31, 106, 110, 111, 116-121, 134, 140-141 items targeted for, 130-132 measurement/modeling, 28-30, 63-64, 108, 122; see also Hedonic quality adjustment medical care, 10, 19, 20 n.5, 28, 30, 40, 67, 86-90, 96, 112, 114, 117, 148, 184-185, 187-188, 190 new goods bias, 31, 107-108, 112-114, 115, 146-148, 156, 161 outlet rotation and, 8-9, 168-170, 171, 172, 173, 174-175, 176 per unit approximations, 107 private contracts, 209-210 rates, 106, 137, 139 recommendations and cautions, 140-146 repackaging framework, 107-108, 111-112, 116-117, 156 for services, 115, 122, 141-142, 148, 168 shelter, 146-147 subgroup indexes and, 230 taste change and, 16, 64, 69, 95, 111 transportation, 28-29, 109, 110, 111, 117, 119, 123, 147-148 valuation of new goods, 3, 18, 64, 73, 156 variety of goods and, 110 n.3, 114 n.8 wage indexes, 204, 209-210 within-sample, 115, 121-122, 140, 156 Quality-of-life metrics, 185 R Reference period, 306, 309, 310, 311 conceptual issues, 41, 42, 47-49, 51 hedonic function, 125 Regional/city price indexes, 66-67, 237, 252 Representative consumer, 241-243 COLI for, 244-246 conditions for existence of, 243-244 Retail Trade Survey, 255 S Sample rotation, 8, 31, 33, 119-120, 140, 156, 157, 163-164, 165, 167, 172 Sampling errors, 260 n.5 Satellite accounts, 4, 101-102, 103, 105 Satisfaction. See also Utility concept, 47, 53, 55-57 hedonic treadmill hypothesis, 56, 69-70 measures of, 55-57 and utility, 55-57 Scanner data and COLI-based CPI, 272-273, 275 and hedonic modeling, 142 n.35 household-based technology, 271-272, 275 limitations, 270-271 point-of-sale, 266-271, 275 and quality of CEX and POPS, 272 Seasoning procedure, 62 Semiconductors, 162 Separability of preferences, 68 Services expenditure categories, 115, 122, 141, 148 flows from consumer capital goods, 33-35, 71-72, 102 pricing, 163 n.12, 172 Shadow price, 90, 158 Shelter compensation issues, 70-71 consumer heterogeneity and, 224, 236 n.11 data collection, 254, 256, 262 n.6, 263 homeowners vs. renters, 70-71, 72 item category, 307

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At What Price?: Conceptualizing and Measuring Cost-of-Living and Price Indexes outlet substitution and, 170 price indexes, 45, 72 quality adjustments, 29, 130, 146-147 service flows from housing, 33-35 Shephard’s Lemma, 82-83, 90, 91 Slutsky matrix, 90, 91 Social cost-of-living index, 51-52, 85-86, 242 Social issues, 96 Social security benefits aggregation issues, 4, 200-201 bias in CPI, 14 consumer heterogeneity and, 226 cost-of-living adjustments, 1, 11, 13, 25, 40, 48, 61, 193-195, 198, 240 CPI-U tied to, 198 democratic vs. plutocratic weights, 240 design of indexes, 11, 35, 40, 43, 48, 192 domain issues, 97, 104, 196 employers’ contributions to, 104 initial retirement benefit, 200 other income with, 71, 195-197 rate of increase, 205-206 superlative index for escalation, 11, 6, 25, 61, 198 tax-and-price index tied to, 195-196 timeliness of data collection, 6, 43 wage-based indexing, 11, 199, 200-201, 204-206, 246 n.17 Standard of living compensation issues, 48, 71 defined, 311 environmental considerations, 19, 95, 96-97 measurement for COLI, 15 n.2, 41, 46-47, 48, 49, 55-56, 59, 63, 69, 80 public goods and, 98 quality of goods and, 63 satisfaction and, 55-56 social security recipients, 71, 97 substitution behavior and, 73 Stigler committee, 1, 3, 14, 38, 73, 122 n.14, 311 Stochastic approach, 41-42, 68 Stocks and flows, 33-35, 71-72, 102 Subgroup indexes. See also Aggregation; Heterogeneity aggregation issues, 4, 5, 26-27, 229 assembly of data for, 232-235 barriers to production, 226-228 biases, 250, 251 conceptual bases, 229-232 costs, 232-235 data collection, 4, 5, 27, 197, 226-228, 229, 231-235, 252, 276 for elderly people, 11, 27, 125, 196-197, 199, 227, 228-229, 231, 249-251 income-stratified, 27, 125, 206-207, 227, 231, 247-249 inflation rates and, 246-251 plutocratic vs. democratic weights, 5, 26- 27, 229, 235 n.9, 237-240 and quality changes, 125, 230, 251 recommendations, 5, 97 n.2 with reference-period weights, 194 research and testing suggestions, 235-237 sample size, 233, 234 of strata prices, 234, 238-239 uses, 231 Substitution. See also Consumer substitution and aggregation, 24-25, 26, 52 bias, 59-62, 93, 113, 128, 147, 168 n.16, 170, 172, 173-174, 248 n.18 CPI, 15-16, 23-25, 113, 224, 230 data collection methods and, 269 elasticity of, 6, 60-61, 91-93, 194, 269 input, 10, 181-184, 188-189 lower-level, 147, 309 new goods, 164-165 outlet, 118, 128, 135, 168 n.16, 170, 172, 173-174, 310 upper-level, 311 within-strata effect, 5 Superlative indexes. See also Fisher ideal index; Törnqvist index; Walsh price index advance estimate of, 195 aggregation, 52, 53, 215 as COLI approximation, 50-51, 57, 95-96 compensation calculations, 60, 61, 194-195 conceptual bases, 50-51, 53, 83-85 data collection for, 259, 272-273 defined, 308, 311 domain, 95-96 endorsement for CPI, 97 n.2 environmental variables, 53, 87, 95-96 as inflation indicator, 218, 248 introduction of new goods, 162 n.10 lagged for escalation, 24, 25, 191, 194-195, 207-208, 210 mathematical approach, 83-85 quality adjustments, 129, 131

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At What Price?: Conceptualizing and Measuring Cost-of-Living and Price Indexes from social aggregate indexes, 86 for social security cost-of-living adjustments, 11, 6, 25, 61, 198 substitution effect, 5, 6, 23, 24, 25, 60, 61, 84, 85, 93, 96, 113 n.6, 215 taste changes and, 25 Supplemental goods, 107, 155 n.1, 163 Supplemental Security Income (SSI), 206-207 T Taste changes COGI vs. COLI, 2, 16, 24-25, 69-70 conceptual issues, 53, 59, 64, 67, 69-70 domain issues, 67, 69, 95 habit formation, 70 and quality changes, 16, 64, 69, 110 n.3 and substitution effect, 25 Tax-and-price index, 195-196 Taxes aggregation across households, 4 consumer heterogeneity and, 226 data collection issues, 270 democratic vs. plutocratic weights, 240 design of indexes, 35, 40, 43, 192, 212-214 direct consumption costs, 213 domain issues, 20-21, 97, 102-103 exact indexation measure, 213-214 indirect, 102 n.8, 195 public goods offset to, 20-21, 102-103 and public transfer program indexing, 97, 195-196 rate-related indexing, 13, 40, 43, 212-214 Taylor series approximation, 90-91 Technological change, 45, 53 domain issues, 67-68, 88-89, 97 “new goods” effect, 67-68, 162 Televisions, 29, 110, 130, 133, 135, 137, 142, 147 Test approach, 41-42, 50, 68, 267 Theoretical bases of indexes basket-price, 43-46 and conceptual basis, 39, 40, 43-58, 73, 74- 93 cost-of-living, 2, 15, 40, 46-53, 58, 79, 83, 86, 110, 113 CPI, 4, 73 criticisms of, 40, 52-53 satisfaction and, 47, 55-57 utility and choice and, 47, 53-55, 110 n.3 Tiebout hypothesis, 99 n.6 Time reversal test, 76-77 Törnqvist index, 85, 93, 248, 311 Transaction costs, 71, 72 Transfer payments. See Public transfer payment indexing ; Social security benefits; specific programs Transportation, 72, 109, 112, 117, 122, 147- 148, 173, 233 n.7 Treasury Department, 259 Treasury Inflation-Protected Securities (TIPS), 1, 192, 210-212 U Union wage contracts, 13, 207-208, 218 Unit pricing, 268-269 Unit value indexes, 236 User costs, 34, 71-72 Utility and choice, 47, 53-55, 110 n.3 decision, 54-55, 57 defined, 53-54, 311 duration neglect bias, 54 environmental factors and, 86-87 experienced, 54, 55, 56-57 function, 79-80, 83-84, 85, 86-90, 92 measures of, 53, 54, 55, 57 predicted, 54 remembered, 54 satisfaction and, 55-57 V Variety of goods, 110 n.3, 114, 146 VCRs, 8, 31, 115, 131, 132, 133, 137, 138, 139, 156, 162, 163, 165, 166 Virtual price, 8, 31, 157-160, 311 W Wage indexes aggregation issues, 200-201 alternatives, 199-206 design issues, 11, 35, 199-206, 207-208 employer-paid benefits in, 201-204 escalators in union contracts, 13, 207-208 hourly earnings, 202 n.9 macroeconomic implications, 205, 218

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At What Price?: Conceptualizing and Measuring Cost-of-Living and Price Indexes mean wage measure, 202, 203 n.10 median wage measure, 202, 205 quality adjustments in, 204 social security benefits tied to, 11, 199, 200, 204-206 Walsh price index, 77, 85 Weighted arithmetic mean, 75, 215 n.24 Weighted harmonic mean, 75, 79 Weights/weighting across-stratum, 227 democratic, 45, 78, 237-240 expenditure, 26, 45, 60, 76 n.1, 86, 166, 167, 198, 227, 307 fixed-weight index, 308 item (upper-level), 97 n.2, 309 Laspeyres index, 45, 75 MCPI, 9, 179, 180, 182, 183, 184, 185, 186, 189, 214 n.22, 220 for new products, 8, 32, 155, 163, 166, 167 plutocratic, 45, 78, 79, 237-240 updating, 8, 32, 96, 155, 163, 166, 167 Welfare effects, 31, 157, 159, 160, 242 Welfare index, 14 Well-being, inputs to, 109-110, 115 Within-sample item replacement, 156, 161 quality adjustments, 115, 121-122