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Cost of Living Indexes and Exact Index Numbers

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Author Info
Diewert, Erwin

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Abstract

The 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 consumer’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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File URL: http://www.econ.ubc.ca/diewert/dp0906.pdf
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Publisher Info
Paper provided by UBC Department of Economics in its series UBC Departmental Archives with number erwin_diewert-2009-6.

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Length: 34 pages
Date of creation: 21 Jan 2009
Date of revision: 13 Feb 2009
Handle: RePEc:ubc:bricol:erwin_diewert-2009-6

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Related research
Keywords: 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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This page was last updated on 2009-10-30.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.