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Activity Number:
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130
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Type:
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Contributed
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Date/Time:
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Monday, August 3, 2009 : 8:30 AM to 10:20 AM
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Sponsor:
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Business and Economic Statistics Section
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| Abstract - #304147 |
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Title:
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Do Laspeyres Preferences Still Hold True? An Evaluation of the Expenditure Weights from the Consumer Price Index
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Author(s):
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Joshua Klick*+
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Companies:
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Bureau of Labor Statistics
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Address:
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2 Massachusetts AVE NE, Washington, DC, 20212,
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Keywords:
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consumer price index ; Laspeyres ; substitution ; decomposition
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Abstract:
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In this paper, expenditure weights from the Consumer Price Index for Urban Consumers (CPI-U) are evaluated to assess the extent to which Laspeyres preferences hold. The Laspeyres preference assumption is examined using two techniques: (i) substitution elasticity, and (ii) Bortkiewicz decomposition. Both techniques compare weights from a previous period, moved forward by price change, to actual observed weights from a current period. Technique (i) measures the optimal elasticity of substitution between the current and previous period weights. When the substitution value approaches zero then Laspeyres preferences hold. Technique (ii) measures the relationship between price change and expenditure change. If the Laspeyres price index is greater than the Paasche index then normal economic assumptions and Laspeyres preferences hold.
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