Returns to Scale, Technical Progress and Total Factor Productivity Growth in New Zealand Industries

This paper reviews and applies some recently proposed methods for separating total factor productivity (TFP) growth into contributions from technical progress and returns to scale, allowing for imperfectly competitive markets. The methods are applied to New Zealand data, using a recently available dataset on nine market-sector industries and the aggregate market sector, 1988-2002. The findings suggest that there has been little contribution from technical progress to TFP growth, but increasing returns to scale may have played a substantial role. However, the results are not statistically satisfactory for several industries, and are quite sensitive to the model used. This highlights the need for more work on both data and analysis if a better understanding is to be had of New Zealand’s productivity performance.Returns to scale; technical progress; monopolistic markups

Can Dissimilarity Indexes Resolve the Issue of When to Chain Price Indexes?

Chaining is used in index number construction to update weights and link new items into an index. However, chained indexes can suffer from, sometimes substantial, drift. The Consumer Price Index Manual (ILO, 2004) recommends the use of dissimilarity indexes to determine when chaining is appropriate. This study provides the first empirical application of dissimilarity indexes in this context. We find that dissimilarity indexes do not appear to be sufficient to resolve the issue of when to chain.Index numbers; price indexes; chain drift; dissimilarity

Understanding Price Variation Across Stores and Supermarket Chains: Some Implications for CPI Aggregation Methods

The empirical literature on price indices consistently finds that aggregation methods have a considerable impact, particularly when scanner data are used. This paper outlines a novel approach to test for the homogeneity of goods and hence for the appropriateness of aggregation. A hedonic regression framework is used to test for item homogeneity across four supermarket chains and across stores within each of these supermarket chains. We find empirical support for the aggregation of prices across stores which belong to the same supermarket chain. Support was also found for the aggregation of prices across three of the four supermarket chains.Price indexes; aggregation; scanner data; unit values; item homogeneity; hedonics

Malmquist and Törnqvist Productivity Indexes: Returns to Scale and Technical Progress with Imperfect Competition

Caves, Christensen and Diewert proposed a method for estimating a theoretical productivity index for a firm using Törnqvist input and output indexes, augmented by exogenous estimates of local returns to scale. However, in order to implement their method, they assumed that the firm maximized revenue in each period, conditional on the observed input vector in each period, taking output prices as fixed. This assumption is not warranted when there are increasing returns to scale. Thus in the present paper, it is assumed that the firm solves a monopolistic profit maximization problem when there are increasing returns to scale and the results of Caves, Christensen and Diewert are modified in accordance with this assumption.Productivity, index numbers, Malmquist indexes, Törnqvist indexes, returns to scale, non-competitive behavior, flexible functional forms.

On Understanding Sources of Growth and Output Gaps for Switzerland

In this paper, we measure the main factors explaining nominal output growth and deviations from trend output in Switzerland over the period 1980 to 2001. The decompositions are based on the GDP function and its dual, the national income function. The results indicate that whereas nominal output growth frequently reflects movements in domestic prices, it is capital formation that makes the largest contribution to real output growth, followed by gains in total factor productivity and improvements in the terms of trade. Deviations of real output from trend appear to have been driven by deviations of labour utilization, of productivity and, during the first decade, of the terms of trade from their respective long-run trends. The important role attributed to productivity and the terms of trade support the view that the customary measures of the output gap should be used with caution when formulating monetary policy.GDP growth, output gap, index numbers, welfare

The Normalized Quadratic Expenditure Function

A concise introduction to the Normalized Quadratic expenditure or cost function is provided so that the interested reader will have the necessary information to understand and use this functional form. The Normalized Quadratic is an attractive functional form for use in empirical applications as correct curvature can be imposed in a parsimonious way without losing the desirable property of flexibility. We believe it is unique in this regard. Topics covered included the problem of cardinalizing utility, the modeling of nonhomothetic preferences, the use of spline functions to achieve greater flexibility and the use of a “semiflexible†approach to make it feasible to estimate systems of equations with a large number of commodities.Normalized Quadratic, expenditure function, flexible functional forms, elasticities.

Scanner Data, Time Aggregation and the Construction of Price Indexes

The impact of weekly, monthly and quarterly time aggregation on estimates of price change is examined for nineteen different supermarket item categories over a fifteen month period using scanner data. We find that time aggregation choices (the choice of a weekly, monthly or quarterly unit value concept for prices) have a considerable impact on estimates of price change. When chained indexes are used, the difference in price change estimates can be huge, ranging from 0.28% to 29.73% for a superlative (Fisher) index and an incredible 14.88% to 46,463.71% for a non-superlative (Laspeyres) index. The results suggest that traditional index number theory breaks down when weekly data with severe price bouncing are used, even for superlative indexes. Monthly and (in some cases even) quarterly time aggregation were found to be insufficient to eliminate downward drift in superlative indexes. In order to eliminate chain drift, multilateral index number methods are adapted to provide drift free measures of price change.Price indexes, aggregation, scanner data, chain drift, superlative indexes, unit values, multilateral index number methods, rolling window GEKS, rolli

Using a Constant Elasticity of Substitution Index to Estimate a Cost of Living Index: From Theory to Practice

Indexes often incorporate various biases due to their methods of construction. The Constant Elasticity of Substitution (CES) index can potentially eliminate substitution bias without needing current period expenditure data. The CES index requires an elasticity parameter. We derive a system of equations from which this parameter is estimated. We find that consumers are highly responsive to price changes at the elementary aggregation level. The results support the use of a geometric rather than arithmetic mean index at the elementary aggregate level. However, we find that even the use of a geometric mean index at the elementary aggregate level may not sufficiently account for the observed level of consumer substitution.Price indexes; elasticity of substitution; scanner data

Carbon Free Boston: Offsets Technical Report

Part of a series of reports that includes: Carbon Free Boston: Summary Report; Carbon Free Boston: Social Equity Report; Carbon Free Boston: Technical Summary; Carbon Free Boston: Buildings Technical Report; Carbon Free Boston: Transportation Technical Report; Carbon Free Boston: Waste Technical Report; Carbon Free Boston: Energy Technical Report; Available at http://sites.bu.edu/cfb/OVERVIEW: The U.S. Environmental Protection Agency defines offsets as a specific activity or set of activities intended to reduce GHG emissions, increase the storage of carbon, or enhance GHG removals from the atmosphere [1]. From a city perspective, they provide a mechanism to negate residual GHG emissions— those the city is unable to reduce directly—by supporting projects that avoid or sequester them outside of the city’s reporting boundary. Offsetting GHG emissions is a controversial topic for cities, as the co-benefits of the investment are typically not realized locally. For this reason, offsetting emissions is considered a last resort, a strategy option available when the city has exhausted all others. However, offsets are likely to be a necessity to achieve carbon neutrality by 2050 and promote emissions reductions in the near term. While public and private sector partners pursue the more complex systems transformation, cities can utilize offsets to support short-term and relatively cost-effective reductions in emissions. Offsets can be a relatively simple, certain, and high-impact way to support the transition to a low-carbon world. This report focuses on carbon offset certificates, more often referred to as offsets. Each offset represents a metric ton of verified carbon dioxide (CO2) or equivalent emissions that is reduced, avoided, or permanently removed from the atmosphere (“sequestered”) through an action taken by the creator of the offset. The certificates can be traded and retiring (that is, not re-selling) offsets can be a useful component of an overall voluntary emissions reduction strategy, alongside activities to lower an organization’s direct and indirect emissions. In the Global Protocol for Community-Scale Greenhouse Gas Emissions Inventories (GPC), the GHG accounting system used by the City of Boston, any carbon offset certificates that the City has can be deducted from the City’s total GHG emissions.http://sites.bu.edu/cfb/files/2019/06/CFB_Offsets_Technical_Report_051619.pdfPublished versio

Carbon Free Boston: Energy Technical Report

Part of a series of reports that includes: Carbon Free Boston: Summary Report; Carbon Free Boston: Social Equity Report; Carbon Free Boston: Technical Summary; Carbon Free Boston: Buildings Technical Report; Carbon Free Boston: Transportation Technical Report; Carbon Free Boston: Waste Technical Report; Carbon Free Boston: Offsets Technical Report; Available at http://sites.bu.edu/cfb/INTRODUCTION: The adoption of clean energy in Boston’s buildings and transportation systems will produce sweeping changes in the quantity and composition of the city’s demand for fuel and electricity. The demand for electricity is expected to increase by 2050, while the demand for petroleum-based liquid fuels and natural gas within the city is projected to decline significantly. The city must meet future energy demand with clean energy sources in order to meet its carbon mitigation targets. That clean energy must be procured in a way that supports the City’s goals for economic development, social equity, environmental sustainability, and overall quality of life. This chapter examines the strategies to accomplish these goals. Improved energy efficiency, district energy, and in-boundary generation of clean energy (rooftop PV) will reduce net electric power and natural gas demand substantially, but these measures will not eliminate the need for electricity and gas (or its replacement fuel) delivered into Boston. Broadly speaking, to achieve carbon neutrality by 2050, the city must therefore (1) reduce its use of fossil fuels to heat and cool buildings through cost-effective energy efficiency measures and electrification of building thermal services where feasible; and (2) over time, increase the amount of carbon-free electricity delivered to the city. Reducing energy demand though cost effective energy conservation measures will be necessary to reduce the challenges associated with expanding the electricity delivery system and sustainably sourcing renewable fuels.Published versio