Estimation of the Optimal Parameter of Delay in Young and Lowe Indices in the Fisher Index Approximation

Abstract

The Cost of Living Index (COLI) enables to show changes in the cost of household consumption assuming the constant utility level. The most commonly used way to approximate COLI is the Consumer Price Index (CPI) calculated by using the Laspeyres index. Many economists consider superlative indices such as the Fisher index as the best proxy for the COLI. However, it uses quantity data not only from a base but also the current period, which limits its usefulness. Thus, the indices like the Lowe index and the Young Index are used in order to approximate the Fisher index value without using current period expenditure data. Both of these indices use an additional parameter of delay. The purpose of this paper is to examine the influence of the parameter mentioned above on the Fisher index approximation using the empirical and simulation data.

Keywords

• cpi
• young index
• lowe index
• laspeyres index
• fisher index
• coli
• cost of living index
• consumer price index
• inflation