Cost of Living Indexes and Exact Index Numbers
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 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.
|Date of creation:||21 Jan 2009|
|Date of revision:||13 Feb 2009|
|Contact details of provider:|| Web page: http://www.economics.ubc.ca/|
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