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Consumer preferences and cost of living in Taiwan

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  • Lieu, Pang-Tien
  • Liang, Jung-Hui
  • Chen, Jui-Hui
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    Abstract

    This paper studies cost of living standards and variations in growth trends for consumers in Taiwan between 1951 and 2001 by allowing consumer preference to be a variable. Our study shows that ignoring changes in preference structure frequently leads to the underestimation of the consumer's true cost of living standards and growth scales in Taiwan. When changes in preference structure are taken into consideration, as was done in studies by Phlips and Sanz-Ferrer [Phlips, Louis, & Sanz-Ferrer, Richard. (1975). A taste-independent true index of the cost of living. Review of Economics and Statistics, 57(4), 495-501] and Heien and Dunn [Heien, D., & Dunn, J. (1985). The true cost of living index with changing preferences. Journal of Business and Economic Statistics, 3(4), 332-335] in the U.S., the Laspeyres price index may underestimate, not overestimate, the true cost of living standards and the growth scale in Taiwan for the 1980s and 1990s. Based on the above findings, when it is necessary to apply the cost of living adjustment clause to all relevant programs, an alternative index such as the non-parametric studied in this paper may be more appropriate than the usual Laspeyres CPI. We would like to suggest that the statistical authorities in Taiwan should also consider routinely compiling and publishing the non-parametric , together with the Laspeyres CPI.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Asian Economics.

    Volume (Year): 19 (2008)
    Issue (Month): 3 (June)
    Pages: 224-235

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    Handle: RePEc:eee:asieco:v:19:y:2008:i:3:p:224-235

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    Web page: http://www.elsevier.com/locate/asieco

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    References

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    14. Lieu, Pang Tien & Mizzi, Philip J. & White, Stephen N., 1992. "Consumer demand with variable preferences in taiwan: an application of the generalized Fechner-Thurstone direct utility function," Journal of Asian Economics, Elsevier, vol. 3(2), pages 281-294.
    15. Brent R. Moulton, 1996. "Bias in the Consumer Price Index: What Is the Evidence?," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 159-177, Fall.
    16. Blow, Laura & Crawford, Ian, 2001. "The Cost of Living with the RPI: Substitution Bias in the UK Retail Prices Index," Economic Journal, Royal Economic Society, vol. 111(472), pages F357-82, June.
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