Cost of Living Indexes and Exact Index Numbers
AbstractThe paper reviews and extends the theory of exact and superlative index numbers. Exact index numbers are empirical index number formula that are equal to an underlying theoretical index, provided that the consumer has preferences that can be represented by certain functional forms. These exact indexes can be used to measure changes in a consumerâ€™s cost of living or welfare. Two cases are considered: the case of homothetic preferences and the case of nonhomothetic preferences. In the homothetic case, exact index numbers are obtained for square root quadratic preferences, quadratic mean of order r preferences and normalized quadratic preferences. In the nonhomothetic case, exact indexes are obtained for various translog preferences.
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Bibliographic InfoPaper provided by Vancouver School of Economics in its series Economics working papers with number erwin_diewert-2009-6.
Length: 34 pages
Date of creation: 21 Jan 2009
Date of revision: 13 Feb 2009
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Web page: http://www.economics.ubc.ca/
Exact index numbers; superlative index numbers; flexible functional forms; Fisher ideal index; normalized quadratic preferences; mean of order r index;
Find related papers by JEL classification:
- C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
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