RECENT economic developments have aroused substantial interest in the treatment in the Consumer Price Index (CPI) of the cost of shelter for homeowners.' From December 1977, when the latest version of the CPI was introduced, until December 1980, the all-items CPI increased at an average annual rate of 11.6%, while the homeownership component increased at an average annual rate of 16.2%. Relative to all of the other goods and services in the CPI, the homeownership component has increased by 17.5% over the same time period. If the relative price of homeownership had remained constant the growth rate of the CPI would have been reduced to 10.1%. The question which has been raised is whether the rapid relative increase in the homeownership component, which has had such an important impact on the CPI, truly reflects changes in the cost of shelter. This question is not only important, but difficult, encompassing many subsidiary questions and auxiliary issues. The purposes of this paper are threefold: (1) to outline briefly a conceptual framework for the CPI, which leads to a straightforward specification of what the shelter component of the CPI should measure, (2) to evaluate the theoretical properties of alternative procedures designed to approximate this measurement objective and (3) present empirical evidence on the operational difficulties involved in pursuing a new approach to shelter cost measurement. Two main conclusions are reached. First, on both theoretical and empirical grounds, a approach to measuring shelter costs for owner-occupants is preferred. Second, an estimated rental equivalence measure has grown more slowly over (at least) the past six years, than the official CPI homeownership component. Given the way in which the CPI is used to escalate both private and public expenditures, these results demonstrate that the choice of measurement technique has important distributional implications.

Roberta Barnes, Robert Gillingham, Demographic Effects in Demand Analysis: Estimation of the Quadratic Expenditure System Using Microdata, The Review of Economics and Statistics, Vol. 66, No. 4 (Nov., 1984), pp. 591-601

In this paper we define a cost-of-living index including direct taxes. We show its relationship to the traditional index and demonstrate how nonconsumption costs are properly treated. We then define a fixed-weight approximation, a tax and price index (TPI). Using federal, state, local, and social security tax rates for 1967-85, we construct annual TPI series based on household data. We find that inclusion of direct taxes has sizable impacts on the estimated rate of inflation. Partitioning our household sample, we find that recognition of taxes significantly alters inflation rate differentials estimated using consumption prices alone. I.

The model of short-run residential demand for electricity combines price-schedule information obtained from the Federal Energy Regulatory Commission with household-specific data from the 1972-73 Consumer Expenditure Survey to determine the household's level of electricity consumption and relate it to the household's demographic profile and appliance stock. The overall short-run price-elasticity estimate of -0.550 supports existing findings that short-run residential electricity demand is price inelastic. However, the variation in elasticities across end-use categories suggests that the overall response is made up of a complex set of responses that vary substantially and significantly across appliances. This implies that it may be more efficient to tailor conservation policies to the stock configuration of the population. 17 references, 6 tables.

Robert Archibald, Robert Gillingham, An Analysis of the Short-Run Consumer Demand for Gasoline Using Household Survey Data, The Review of Economics and Statistics, Vol. 62, No. 4 (Nov., 1980), pp. 622-628