Problems of operationalizing the concept of a cost-of-living index
AbstractThe aim of our paper is to discuss the problems of operationalizing the concept of a .cost-of-living-index. (COLI). For this purpose we are first undertaking a theoretical analysis of Diewert’s theory of superlative index numbers as one possible approach to approximate a COLI. We show that Diewert.s superlative index approach is arguable in many points and that the approach requires restrictive assumptions which are not likely to be met in observed households behaviour. To get a better idea about the deviation of observed households behaviour from the neoclassical assumptions about utility maximizing behaviour, we are estimating an Almost Ideal Demand System and a Quadratic Almost Ideal Demand System with cross section micro data from the German income and expenditure survey. Using the results of the demand system estimations we calculate COLIs and compare them with superlative index numbers and the Laspeyres price index.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 32902.
Date of creation: 19 Jun 2011
Date of revision:
cost-of-living index; superlative index numbers; Diewert; demand systems;
Find related papers by JEL classification:
- C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-09-16 (All new papers)
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