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Oxford Economic Papers Advance Access originally published online on September 15, 2005
Oxford Economic Papers 2005 57(4):634-646; doi:10.1093/oep/gpi040
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Right arrow C43 - Index Numbers and Aggregation
Right arrow D31 - Personal Income, Wealth, and Their Distributions
Right arrow D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
Right arrow E31 - Price Level; Inflation; Deflation
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© Oxford University Press 2005; All rights reserved

Whose inflation? A characterization of the CPI plutocratic gap

Eduardo Ley

Fiscal Affairs Department, International Monetary Fund, Washington DC 20431, USA; e-mail: eley{at}imf.org

Prais (1958) showed that the standard CPI computed by most statistical agencies can be interpreted as a weighted average of household price indexes, where the weight of each household is determined by its total expenditures. In this paper, we decompose the CPI plutocratic gap—i.e. the difference between the standard CPI and a democratically-weighted index, where each household has the same weight—as the product of expenditure inequality and the sample covariance between the elementary individual price indexes and a term which is a function of the expenditure elasticity of each good. This decomposition allows us to interpret variations in the size and sign of the plutocratic gap, and to discuss issues pertaining to group indexes.

Key Words: JEL classification: C43 • D31 • D63


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