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INDEX NUMBERS AND REVEALED PREFERENCE RANKINGS

Published online by Cambridge University Press:  27 November 2018

Per Hjertstrand
Affiliation:
Research Institute of Industrial Economics
James L. Swofford*
Affiliation:
University of South Alabama
Gerald A. Whitney
Affiliation:
University of New Orleans
*
Address correspondence to: James Swofford, Department of Economics and Finance, University of South Alabama, Mobile, AL 36688, USA; e-mail: jswoffor@southalabama.edu. Phone: +1 251 460 6705.

Abstract

For previously identified weakly separable blockings of goods and assets, we construct aggregates using four superlative index numbers, the Fisher, Sato-Vartia, Törnqvist, and Walsh, two non-superlative indexes, the Laspeyres and Paasche, and the atheoretical simple summation. We conduct several tests to examine how well each of these aggregates “fit” the data. These tests are how close the aggregates come to solving the revealed preference conditions for weak separability, how often each aggregate gets the direction of change correct, and how well the aggregates mimic the preference ranking from revealed preference tests. We find that, as the number of goods and assets being aggregated increases, the problems with simple summation manifest.

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Articles
Copyright
© Cambridge University Press 2018

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Footnotes

We thank two referees, Bill Barnett, and participants at the Society for Economic Measurement conference in Thessaloniki in July 2016 and the 3rd HenU/Infer Workshop on Applied Macroeconomics in March 2017 in Kaifeng for very helpful comments. Hjertstrand would like to thank the Jan Wallander och Tom Hedelius, Marcus och Marianne Wallenberg, and Johan och Jakob Söderberg foundations for financial support.

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