The Problem with Normalizing Preferences that Change in a Cost-of-Living Index

Gregory Kurtzon

No 534, Economic Working Papers from Bureau of Labor Statistics

Abstract: There are new proposals for prices indexes that attempt to correct for what they consider bias in standard indexes from changes in consumer preferences. But these proposals have a fundamental problem that changes in preferences between two periods cannot be identi.ed by data on prices and quantities with only a normalization. This paper shows that the required normalization is not free, so that an arbitrary choice of normalization can yield any desired index result. In fact, a normalization using the Sato-Vartia weights yields a Sato-Vartia index, implying exactly zero bias.

Date: 2020
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.bls.gov/osmr/research-papers/2020/pdf/ec200160.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bls:wpaper:534

Access Statistics for this paper

More papers in Economic Working Papers from Bureau of Labor Statistics Contact information at EDIRC.
Bibliographic data for series maintained by Jennifer Cassidy-Gilbert ().