Approximating the Cost-of-Living Index for a Storable Good

Matthew Osborne

American Economic Journal: Microeconomics, 2018, vol. 10, issue 2, 286-314

Abstract: This paper estimates a cost-of-living index using a dynamic structural model for two storable product categories. In each category, regime shifts to higher or lower retail prices are observed. Fixed-base indexes do a poor job of capturing changes in welfare after a regime shift, and deviate from the dynamic index by as much as 300 percent. I evaluate the extent to which two recently proposed indexes can approximate the model-derived index. These indexes improve welfare measurement and are straightforward to compute. The category's competitive structure and features of the regime shift determine which of the two provides a better approximation.

JEL-codes: C43 C51 E31 L11 (search for similar items in EconPapers)
Date: 2018
Note: DOI: 10.1257/mic.20140254
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Citations: View citations in EconPapers (8)

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