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Identifier to cite or link to this item: https://hdl.handle.net/10086/31237

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Title
Generalized Logarithmic Index Numbers with Demand Shocks: Bridging the Gap between Theory and Practice
Creator
Creator Name
Abe, Naohito Abe, Naohito
阿部, 修人 阿部, 修人
Affiliation
Affiliation Name
Hitotsubashi University
Creator Name
Rao, D.S.Prasada Rao, D.S.Prasada
Affiliation
Affiliation Name
The University of Queensland
Affiliation
Affiliation Name
Hitotsubashi University
Key Word
Price comparisons
Preference Heterogeneity
Logarithmic Indices
Transitivity
Scanner Data
Chain Drift
JEL
E31
C43
Abstract
There has long been a gap between theory and practice for measuring aggregate price changes. As Samuelson and Swamy (1974, AER) stated, deflators must satisfy transitivity to make real consumption expenditures consistent with consumer theory. To date, few well-known indices are transitive. Building on Redding and Wenstein (2020), we consider a generalized logarithmic index with demand shocks and establish its monotonicity and transitivity properties, which fills the gap. We also derive conditions under which the logarithmic price index is unique. Analysis of Japanese weekly scanner data shows that the traditional chained Sato-Vartia index has 4.86 percent downward bias per annum.
Description
28 June, 2020
Publisher
Institute of Economic Research, Hitotsubashi University
Issued Date
2020-06
Language
English(eng)
Resource Type
technical report
Version Type
VoR
Is Part OfRelation -
Related Title
RCESR Discussion Paper Series ; No. DP20-1
Number of Pages
36
Sponsorship
Abe’s work was supported by JSPS KAKENHI, 19H01467, 16H06322, 18H00864, and 20H00082.
Appears in Collections
RCESR Discussion Paper Series / Research Center for Economic and Social Risks
URL
https://hdl.handle.net/10086/31237