An official website of the United States government
United States Department of Labor
United States Department of Labor
The .gov means it's official.
Federal government websites often end in .gov or .mil. Before sharing sensitive information,
make sure you're on a federal government site.
The site is secure.
The
https:// ensures that you are connecting to the official website and that any
information you provide is encrypted and transmitted securely.
Office of Survey Methods Research
SHARE ON:
More Information
Published Year: 2020
Survey/Program(s): Office of Prices and Living Conditions
Catalog: Economic Working Paper
WP Number: WP-534
Download PDF
The Problem with Normalizing Preferences that Change in a Cost-of-Living Index
Abstract
There are new proposals for prices indexes that attempt to correct for what they consider bias in standard indexes from changes in consumer preferences. But these proposals have a fundamental problem that changes in preferences between two periods cannot be identi.ed by data on prices and quantities with only a normalization. This paper shows that the required normalization is not free, so that an arbitrary choice of normalization can yield any desired index result. In fact, a normalization using the Sato-Vartia weights yields a Sato-Vartia index, implying exactly zero bias.