Changes in relative consumer prices and the substitution bias of the Laspeyres price index: Ireland, 1985-2001
Somerville, R. A.
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Citation:Somerville, R.A. 'Changes in relative consumer prices and the substitution bias of the Laspeyres price index: Ireland, 1985-2001'. - Economic & Social Review, Vol. 35, No. 1, Spring, 2004, pp. 55-82, Dublin: Economic & Social Research Institute
This paper shows that Irish relative consumer prices have changed significantly, 1985-2001, at the ten commodity-group level. A ?true? cost-of-living index is derived from Madden?s (1993) parameter estimates for an Almost Ideal Demand System. Despite relative price changes, the substitution bias of a computed Laspeyres index is small, and the official Consumer Price Index tracks the computed index closely. Superlative indices are also constructed, but are not satisfactory cost-of-living indices in this context. Cost-of-living indices are computed for different income groups, and the impact of inflation in recent years is found to be negatively correlated with income.
Cost of living indices
Publisher:Economic & Social Research Institute