DIVISIA AND FRISCH ARE FRIENDS

Kenneth Clements and Jiawei Si

No 18-05, Economics Discussion / Working Papers from The University of Western Australia, Department of Economics

Abstract: Divisia indexes and the less-well-known Frisch counterparts both involve weighted logarithmic changes of prices/quantities. This paper shows how they can be used in tandem to understand interesting aspects of consumer behaviour. The indexes can be used for measurement of quality and its price; the estimation of the income elasticity of the marginal utility of income, which is related to the overall degree of substitution among goods in the consumer’s basket; and for the analysis of the bias in the consumer price index due to the neglect of substitution effects. In this sense, Divisia and Frisch (indexes) are friends.

Keywords: Divisia index numbers; Frisch index numbers; measuring quality; the income flexibility; the CPI bias (search for similar items in EconPapers)
JEL-codes: C43 D11 D12 (search for similar items in EconPapers)
Pages: 58
Date: 2018
Note: MD5 = b11b37dd9245c841ca0d623fe7a76916
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