The Role of the Hamiltonian in Dynamic Price Index Theory
AbstractThis paper is an attempt to investigate the cost-of-living index problem in a general equilibrium multi-sector growth model. Instead of using the utility function as a compensation criterion as Konüs’ (1924) did in his original contribution, we take advantage of the current-value Hamiltonian in constructing our dynamic price index. Since the Hamiltonian is a constancy-equivalent of future utilities (Weitzman, 1976), the dynamic price index is defined in terms of the minimum expenditure that, under alternative prices, would support the constancy-equivalent-utility level in the future. We show that, when properly deflated by the dynamic price index, the real comprehensive net national product becomes an ideal measure for dynamic welfare comparisons. For some special cases, we show that the dynamic price index reduces to the simple static index.
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Bibliographic InfoPaper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 626.
Length: 19 pages
Date of creation: 15 Feb 2004
Date of revision:
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Postal: Department of Economics, Umeå University, S-901 87 Umeå, Sweden
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Dynamic index theory; Hamiltonian; ideal deflator;
Find related papers by JEL classification:
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-02-23 (All new papers)
- NEP-MAC-2004-02-23 (Macroeconomics)
- NEP-MIC-2004-02-23 (Microeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gillingham, Robert, 1983. "Measuring the Cost of Shelter for Homeowners: Theoretical and Empirical Considerations," The Review of Economics and Statistics, MIT Press, vol. 65(2), pages 254-65, May.
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- Pollak, Robert A, 1975. "Subindexes in the Cost of Living Index," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(1), pages 135-50, February.
- Goodhart, Charles, 2001. "What Weight Should Be Given to Asset Prices in the Measurement of Inflation?," Economic Journal, Royal Economic Society, vol. 111(472), pages F335-56, June.
- Li, Chuan Zhong & Löfgren, Karl-Gustaf, 2006. "Money Metrics Welfare Measures in Imperfect Markets under Growth," UmeÃ¥ Economic Studies 694, Umeå University, Department of Economics.
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