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Cost of Living Indexes and Exact Index Numbers

  • Diewert, Erwin

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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Paper provided by Vancouver School of Economics in its series Economics working papers 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
Contact details of provider: Web page: http://www.economics.ubc.ca/

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  1. repec:cup:cbooks:9780521889070 is not listed on IDEAS
  2. Samuelson, Paul A, 1974. "Complementarity-An Essay on the 40th Anniversary of the Hicks-Allen Revolution in Demand Theory," Journal of Economic Literature, American Economic Association, vol. 12(4), pages 1255-89, December.
  3. Diewert, W E & Wales, T J, 1992. "Quadratic Spline Models for Producer's Supply and Demand Functions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(3), pages 705-22, August.
  4. Diewert, W. E. & Wales, T. J., 1988. "A normalized quadratic semiflexible functional form," Journal of Econometrics, Elsevier, vol. 37(3), pages 327-342, March.
  5. W. Erwin Diewert & T.J. Wales, 1989. "Flexible Functional Forms and Global Curvature Conditions," NBER Technical Working Papers 0040, National Bureau of Economic Research, Inc.
  6. Samuelson, Paul A & Swamy, S, 1974. "Invariant Economic Index Numbers and Canonical Duality: Survey and Synthesis," American Economic Review, American Economic Association, vol. 64(4), pages 566-93, September.
  7. Hill, Robert J., 2006. "Superlative index numbers: not all of them are super," Journal of Econometrics, Elsevier, vol. 130(1), pages 25-43, January.
  8. M. Denny, 1974. "The Relationship Between Functional Forms for the Production System," Canadian Journal of Economics, Canadian Economics Association, vol. 7(1), pages 21-31, February.
  9. W. E. Diewert & T. J. Wales, 1993. "Linear and Quadratic Spline Models for Consumer Demand Functions," Canadian Journal of Economics, Canadian Economics Association, vol. 26(1), pages 77-106, February.
  10. Diewert, W E & Wales, T J, 1988. "Normalized Quadratic Systems of Consumer Demand Functions," Journal of Business & Economic Statistics, American Statistical Association, vol. 6(3), pages 303-12, July.
  11. Blackorby, Charles & Diewert, W E, 1979. "Expenditure Functions, Local Duality, and Second Order Approximations," Econometrica, Econometric Society, vol. 47(3), pages 579-601, May.
  12. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
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