Cost of Living Indexes and Exact Index Numbers

Walter Diewert

Economics working papers from Vancouver School of Economics

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.

Keywords: Exact index numbers; superlative index numbers; flexible functional forms; Fisher ideal index; normalized quadratic preferences; mean of order r index (search for similar items in EconPapers)
JEL-codes: C43 D11 D12 E31 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2009-01-21, Revised 2009-02-13
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:ubc:bricol:erwin_diewert-2009-6

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