Working Paper: NBER ID: w10197
Authors: Robert C. Feenstra; Marshall B. Reinsdorf
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.
Keywords: Index Numbers; Standard Errors; Productivity Growth; Stochastic Prices; Stochastic Tastes
JEL Codes: C43; O53
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| TFP growth in Singapore in any single year (O49) | Cumulative TFP over a fifteen-year period (O49) |
| Different rates of return for capital (E25) | Difference in TFP growth estimates between their approach and those of Young (1992, 1995) (O41) |
| Stochastic nature of prices and tastes (D89) | Variability in the indices used to measure productivity growth (O49) |