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Selected Works of Ferran Sancho
Article
The true index of cost of living under general equilibrium: the numéraire matters
Economics Letters (2018)
  • Ana-Isabel Guerra, Universidad de Granada
  • Antonio Manresa, Universidad de Barcelona
  • Ferran Sancho, Universitat Autonoma de Barcelona
Link
Abstract
The evaluation of welfare effects should be unambiguous. We show that the Konüs true index of cost 
of  living  is  numéraire  dependent  in  general  equilibrium.  This  may  lead  to  ambiguous,  even 
contradictory, interpretations of welfare results. To correct this problematic interpretational situation, 
we  propose  a  normalization  of  the  standard  Konüs  index  using  an  endogenously  determined  price 
index. We also provide a simplified expression of the index for the special case of homothetic utilities, 
which is especially relevant given their widespread use in numerical general equilibrium. 
Keywords
  • Konüs index,
  • true cost of living,
  • welfare effects,
  • general equilibrium.
Disciplines
Publication Date
December, 2018
DOI
https://doi.org/10.1016/j.econlet.2018.09.016
Citation Information
Ana-Isabel Guerra, Antonio Manresa and Ferran Sancho. "The true index of cost of living under general equilibrium: the numéraire matters" Economics Letters Vol. 173 (2018) p. 69 - 72
Available at: http://works.bepress.com/ferran_sancho/72/