Abstract
Robert A. Cage, Thesia I. Garner, and Javier Ruiz-Castillo (2002) "Constructing
Household Specific Consumer Price Indexes: An Analysis of Different
Techniques and Methods."
The primary purpose of this study is to produce household specific
price indexes for consumer units or households living in the United States
in the early 1990s. This paper is a report on how these household specific
indexes were created. With household specific indexes, households are
assumed to have nonhomothetic preferences, so changes in prices involve
relative price changes between different sets of commodities and the
resulting indexes will differ systematically between different households.
We examine several different approaches to construct these indexes. Our
indexes are based on internal U.S. Consumer Expenditure Survey (CEX) data
for 1990-91 and Bureau of Labor Statistics Consumer Price Index (CPI) data
from winter 1981, 1987, and 1991. Our base period is 1990-91. Using these
data we produce Paasche type household specific indexes. In addition we
propose an alternative definition of total expenditures, based on the CPI
market basket commodity space, to be used for welfare analysis. Our
underlying motivation for conducting this study was to compare real
welfare inequality in Spain and the U.S. in the 1980s for another study
(Garner et al. forthcoming 1997). Because of this comparison, we were
somewhat restricted in our approach.
CEX data are used to calculate CPI market basket item budget shares for
each interviewed household. Price indexes are merged with the household
budget data at various levels of geographic and market basket item
aggregation, and the variability in these indexes are compared in order to
measure the value of using detailed consumption space over aggregated
consumption space. In this study we introduce two novel approaches to
producing household specific price indexes using BLS data. First,
expenditure data from the Consumer Expenditure Diary survey, which is more
detailed than the Interview, are used to impute missing consumption items
for the Interview households. And second, a method to impute household
indexes for the rural population is presented. Two different types of
samples, horizontal and vertical (based on assumptions about the Interview
households selected to define the base period), are used to provide the
weights for the price indexes. Indexes are presented based on Interview
only items and all items commodity spaces for the horizontal and vertical
samples with additional indexes produced for consumer units living in
urban and rural areas.
From our study we conclude that indexes based on expenditures for the
horizontal and vertical samples do not differ significantly for the time
periods of our study. However, differences in the indexes do result for
the urban versus rural samples, with consumer units living in urban areas
facing greater changes in relative prices than are faced by consumer units
living in rural areas. The all-item indexes produced slightly higher index
values than did the Interview-only item indexes. Relative prices appear to
be pro-poor during the 1980s.
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