Dynamic cost of living index for storable goods

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), and then introduce two types of dynamic COLIs. I find that neither index satisfies both monotonicity and the time reversal test.