Dynamic cost of living index for storable goods
Vol:
88/2019
Year:
2019
Month:
December
Abstract:
Consumers hold inventory for future uses. This study investigates how such intertemporal decisions influence the cost-of-living index (COLI). To this end, I construct a simple dynamic model, in which goods are storable and nonresalable, and prices take either high (regular price) or low values (sales). I then introduce two types of dynamic COLIs. Simulation results show that neither index satisfies both monotonicity and the time reversal test.
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