Approximating the Cost-of-Living Index for a Storable Good
American Economic Journal: Microeconomics
vol. 10,
no. 2, May 2018
(pp. 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.Citation
Osborne, Matthew. 2018. "Approximating the Cost-of-Living Index for a Storable Good." American Economic Journal: Microeconomics, 10 (2): 286-314. DOI: 10.1257/mic.20140254Additional Materials
JEL Classification
- C43 Index Numbers and Aggregation; Leading indicators
- C51 Model Construction and Estimation
- E31 Price Level; Inflation; Deflation
- L11 Production, Pricing, and Market Structure; Size Distribution of Firms
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