Should Exact Index Numbers Have Standard Errors? Theory and Application to Asian Growth

48 Pages Posted: 4 Jan 2004 Last revised: 13 Nov 2022

See all articles by Robert C. Feenstra

Robert C. Feenstra

University of California, Davis - Department of Economics; National Bureau of Economic Research (NBER)

Marshall B. Reinsdorf

U.S. Department of Commerce - Bureau of Economic Analysis (BEA)

Date Written: January 2004

Abstract

In this paper we derive the standard error of a price index when both prices and tastes or technology are treated as stochastic. Changing tastes or technology are a reason for the weights in the price index to be treated as stochastic, which can interact with the stochastic prices themselves. We derive results for the constant elasticity of substitution expenditure function (with Sato-Vartia price index), and also the translog function (with Törnqvist price index), which proves to be more general and easier to implement. In our application to Asian growth, we construct standard errors on the total factor productivity (TFP) estimates of Hsieh (2002) for Singapore. We find that TFP growth is insignificantly different from zero in any year, but cumulative TFP over fifteen years is indeed positive.

Suggested Citation

Feenstra, Robert C. and Reinsdorf, Marshall B., Should Exact Index Numbers Have Standard Errors? Theory and Application to Asian Growth (January 2004). NBER Working Paper No. w10197, Available at SSRN: https://ssrn.com/abstract=483881

Robert C. Feenstra (Contact Author)

University of California, Davis - Department of Economics ( email )

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Marshall B. Reinsdorf

U.S. Department of Commerce - Bureau of Economic Analysis (BEA) ( email )

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