Using a price-dependent utility function to construct price indices

Igor Uliyanov

MPRA Paper from University Library of Munich, Germany

Abstract: The purpose of this paper is to incorporate a price-dependent utility function into the theory of price indices. The results presented in the paper provide justification for incorporating relative prices into a consumption aggregate for solving the household’s optimization problem. Using a proposed CES aggregator, a simple model to approximate the conventional geometric price indices has been developed. The model provides the channels of convergence between the axiomatic, stochastic and economic approaches to index number theory. Numerical results based on data published by the Office for National Statistics are presented to confirm the validity of the model

Keywords: Consumption aggregator with price-dependent weights; Price index with price-dependent preferences (search for similar items in EconPapers)
JEL-codes: C43 E12 E31 (search for similar items in EconPapers)
Date: 2024-01-17
New Economics Papers: this item is included in nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:120304

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