The true cost-of-living index with changing preferences

Dale Heien, James William Dunn

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

This article investigates the theoretical and empirical properties of a true cost-of-living index under conditions of changing preferences. A family of true indexes is defined based on the notion of the current utility function. A particular index, based on the previous period’s utility level, is then defined. Given this definition, a true cost-of-living index is computed based on a quadratic expenditure system estimated with quarterly data from 1960-1981. For empirical purposes, changes in preferences are represented by the linear habit formation hypothesis. This index is then compared with Paasche and Laspeyres indexes. The true cost-of-living index grows somewhat faster than either the Paasche or Laspeyres index. It also displays considerably more variability.

Original languageEnglish (US)
Pages (from-to)332-335
Number of pages4
JournalJournal of Business and Economic Statistics
Volume3
Issue number4
DOIs
StatePublished - Jan 1 1985

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cost of living
Costs
Habit Formation
Quadratic Systems
Cost of living index
Utility Function
habits
expenditures

All Science Journal Classification (ASJC) codes

  • Statistics and Probability
  • Social Sciences (miscellaneous)
  • Economics and Econometrics
  • Statistics, Probability and Uncertainty

Cite this

Heien, Dale ; Dunn, James William. / The true cost-of-living index with changing preferences. In: Journal of Business and Economic Statistics. 1985 ; Vol. 3, No. 4. pp. 332-335.
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The true cost-of-living index with changing preferences. / Heien, Dale; Dunn, James William.

In: Journal of Business and Economic Statistics, Vol. 3, No. 4, 01.01.1985, p. 332-335.

Research output: Contribution to journalArticle

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