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The elasticity of substitution of superlative price indices

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Abstract

The paper presents a method for computing the curvature implicit in the use of superlative price indices. It extends the quadratic lemma and allows us to compute the elasticity of substitution of the underlying preferences in the direction of the observed price change for the Törnqvist and the quadratic mean of order r indices. It derives the expressions for the directional shadow elasticity of substitution and applies the results to the Norwegian CPI data base.

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  • Petter Frenger, 2005. "The elasticity of substitution of superlative price indices," Discussion Papers 407, Statistics Norway, Research Department.
    • Handle: RePEc:ssb:dispap:407
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    1. Diewert, W E, 1971. "An Application of the Shephard Duality Theorem: A Generalized Leontief Production Function," Journal of Political Economy, University of Chicago Press, vol. 79(3), pages 481-507, May-June.
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    3. E. T. McPHEE., 1928. "Notes," The Economic Record, The Economic Society of Australia, vol. 4(1), pages 92-95, May.
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    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

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